Home Shopping Network Asks for Probe of Rumors

Taking the offensive in the face of its cascading stock value, Home Shopping Network disclosed Monday that it has asked the American Stock Exchange and the Securities and Exchange Commission to investigate the source of “false and misleading rumors” about the company’s financial condition.

“We’re not going to sit by idly and allow false and misleading rumors to be spread about us,” said Joseph A. Connolly, the company’s chief financial officer for the past five months.

A formerly high-flying pioneer in the burgeoning field of home shopping by television, Home Shopping Network went public in a hot offering in May, 1986, and watched its stock price soar immediately to more than $42 a share from $18. The stock since has split twice, but the share price has been sliding steadily for the past six months.

In a statement, Chairman and Chief Executive Roy M. Speer said recent “informal press releases” have been “deceivingly altered into rumors that the company is having both management and financial difficulties.”

He added that “such rumors are false and completely without foundation and can only be intended for the purpose of manipulating HSN’s stock.” In addition, he said the company “is sound and is in the strongest financial position in its history.”

However, Wall Street seems to have soured on the Clearwater, Fla., company in recent months because of a series of setbacks, notably the summer cancellation of “The Home Shopping Game,” a syndicated joint venture with Horn & Hardart that merged home shopping and entertainment, and the loss of what the company contends was $500 million in sales because of phone problems.

Last Thursday, Home Shopping Network filed a $1.5-billion suit against GTE Corp., contending that its General Telephone Co. of Florida unit had provided inadequate telephone service and sold faulty equipment. GTE has denied the allegations.

The company also on Sept. 17 announced a management restructuring.

Those two developments, which analysts note should have been positives for the company, were “turned around,” said Mark B. Friedman, with the Boston investment firm of Homans, McGraw, Trull, Valeo & Co. “I guess there’s a lot of short sellers,” investors who profit if a share price drops.

Friedman noted that the company “lost a lot of credibility” with the cancellation of its syndicated program, which was shown over CBS affiliates and other stations. The company had anticipated annual sales of $600 million to $800 million from the program, but it lasted only 13 weeks.

In addition, Friedman said, the company’s expenses have gone up in recent months as it has absorbed the purchase of 13 UHF stations, at a total cost of more than $200 million.

Larry Gerbrandt, a senior analyst with Paul Kagan Associates in Carmel who is bullish on the home shopping industry, said he has “been hearing rumors that HSN would take some pretty heavy charges in the fourth quarter, but all of those rumors have been flatly discounted by the company.”

Connolly said the company actually had requested the American Stock Exchange and SEC investigation about 1 1/2 months ago but decided to go public with it Monday because of negative published reports.

A Barron’s story over the weekend, for example, quoted an unnamed source as saying that the company’s inventory at the end of the May quarter was up to 104 days of sales, compared to 41 days in the same period a year earlier, because of rising returns of merchandise. Connolly contested that, saying the figure was “really around half that.”

“The company is on record as saying the fourth quarter will be flat . . . because after the new phone system was turned on, we restarted all marketing, advertising and sales campaigns,” he said. “It takes a lot of money to wake up a sleeping giant.”

In trading on the American Stock Exchange on Monday, shares rose 12.5 cents to $11.50.