Home Shopping: Buyout Talks, Shakeout Fears
The rival shop-by-television programs of Home Shopping Network and COMB Co. are a cross between a game show and a midnight madness sale. They’re like MTV for the shopping set.
Now, Home Shopping Network is poised to slip COMB into its shopping bag in a merger that would create the biggest player by far in the young video retailing industry. But analysts question whether the currently popular television shopping business will be an enduring hit or an eventual bomb with consumers.
An industry shakeout “is going to happen at some point, maybe sooner rather than later,” said analyst Mark Witmer of Wessels Arnold & Henderson, a regional brokerage based in Minneapolis. “But this (Home Shopping and COMB) . . . would be the dominant player which would have absolute staying power.”
Roy M. Speer, chairman of Home Shopping Network of Clearwater, Fla., called the two companies “very synergistic.”
“We just think we can bring something to their party,” Speer said in an interview.
The two companies jointly announced Tuesday that they have discussed a merger in which COMB stockholders would get $36 worth of Home Shopping stock for each share of COMB stock, or a total of $648 million. Speer said the two firms continue to negotiate details of the merger.
Home Shopping Network pioneered the shop-by-television show when it went national in July, 1985. The company now reaches more than 35 million households through its affiliated cable systems and nine UHF television stations, including one in the Los Angeles area.
Its primary rival has been 12-million subscriber Cable Value Network, which is 50% owned by COMB Co., a Minneapolis-based direct-mail marketer that decided last year to de-emphasize its retail operations. COMB,
which stands for Close Out Merchandise Buyers, said it will close some or all of its 41 Midwest stores to concentrate on television shopping and direct marketing operations.
It also has some prominent shareholders, including Minneapolis financier Irwin Jacobs, also a COMB director, and Tele-Communications Inc. of Denver, the largest cable-television operator in the United States.
Other big names who have recently entered the business include QVC Network, which has an agreement to carry Sears products, Financial News Network, and a joint venture of Fox Television, Lorimar-Telepictures and Horn & Hardart. Paul Kagan Associates, a cable-industry consultant, estimates that home shopping programs could generate $2.25 billion in sales this year and $6 billion annually by 1990.
Television shopping stocks have also been a favorite on Wall Street. Home Shopping Network, which jumped to $42.625 a share from $18 on its first day of trading in May, 1986, “is the Cadillac of the group,” said Glen King Parker, publisher of New Issues, a Fort Lauderdale newsletter. Home Shopping has had two stock splits since it went public.
On Wednesday, Home Shopping led the American Stock Exchange’s most-active list, falling $4.25 to $34 after climbing as high as $47 during the day. COMB stock rose $2.25 to close at $30.5- in over-the-counter trading. Both issues had risen sharply in recent days on takeover rumors.
The TV shopping programs feature hosts who tout discount products with an almost evangelical fervor. A toll-free number flashes on the screen and shoppers can purchase goods with credit cards from the comfort of their arm chairs.
“People like it,” Speer said. “Everybody loves a bargain, and we try to give them bargains and the ease of doing it at home.”
Speer said the proposed merger would strengthen both companies by combining Home Shopping’s extensive cable and broadcast systems with COMB’s buying expertise.
The Home Shopping-COMB combination “is going to be a very strong entity when they get this thing pieced together,” analyst Witmer said. COMB probably will run the cable and direct-marketing operations while Home Shopping will produce a separate show with somewhat higher-priced merchandise for broadcast on its UHF stations, he said.
The proposed merger would also give the combined company a better chance of surviving the much predicted industry shakeout that will come from two many operators chasing too few shoppers, Witmer said.
Noted Parker: “You can’t have 20 different channels all carrying broad ranges of merchandise without a shakeout. . . . In the long run, what they’re going to have to do is carve out special markets. Right now, they’re all selling a little of everything.”
Speer said the shakeout has already started, “but it’s not going to be us. . . . We have a tremendous amount of room to grow.”
