CVN Will Pay Cost of Keeping Ailing Firm on Air : Rival Agrees to Aid Fashion Channel Network

Fashion Channel Network, which filed for bankruptcy court protection last month, won some relief from its severe cash problems Monday when a rival home shopping service assumed the expense of keeping Fashion Channel on the air.

CVN Cos., the Minneapolis-based operator of Cable Value Network, took over the operations of Fashion Channel under a three-year agreement tentatively approved in U.S. Bankruptcy Court in Los Angeles. The agreement is subject to final court ratification next month, but CVN plans to continue operating the cable-TV shopping service without interruption.

The arrangement falls short of the bailout Carson-based Fashion Channel sought when it began looking last month for a cash infusion and filed to reorganize under Chapter 11 of U.S. Bankruptcy Code. But it allows the channel to stay on the air and removes the burden of further expenses from its shareholders, giving the company a chance to successfully reorganize, said Richard Harvey, a Fashion Channel attorney.

Under the agreement, CVN has begun financing Fashion Channel’s broadcasts and handling its marketing and sales. It also will pay sales commissions to cable-television operators that carry Fashion Channel’s programming, some of whom had threatened to cancel their service. Home shopping services display merchandise to cable-TV viewers and take sales orders for the goods over the phone.

In return for its financing and management, CVN will keep 97.5% of Fashion Channel’s sales. Fashion Channel will receive the rest.

CVN also was given an option to buy 51% of the Fashion Channel for 50 cents a share. The option hasn’t been approved by the court, and CVN said it has “no present intention” to exercise it, given the financial condition of the Fashion Channel.

Under the agreement, CVN won’t be responsible for liabilities Fashion Channel incurred before Monday, the companies said. Nor will it put any other cash into the company.

Nevertheless, Harvey said, “to the extent that the agreement with CVN produces revenue, it will be a substantial help in reducing debt and restoring shareholder value.”

The company held several talks with other concerns about a possible buyout or cash infusion, Harvey said, “but we were not able to structure anything” other than the agreement with CVN.

The agreement gives CVN, which bills itself as the largest cable-television shopping service, “a second channel to sell merchandise over the air,” said Ronald L. Rotter, an analyst with Morgan, Olmstead, Kennedy & Gardner in Los Angeles. The channel, whose largest shareholder is Minneapolis investor Irwin Jacobs, reaches about 20 million cable subscribers.

CVN was formed in May, 1986, as a joint venture of COMB Co., a Minneapolis discount merchandiser, and Tele-Communications Inc., the giant Denver-based cable operator.

Warner Communications also acquired an interest in the venture, but COMB bought out its partners in July, 1987, and renamed itself CVN.

While the Fashion Channel has concentrated on apparel and accessories, CVN has emphasized jewelry, electronics and other consumer goods, said Mitchell Joelson, a CVN senior vice president.

However, CVN has added more apparel recently as the industry took note of increased consumer interest in ordering clothing through home shopping.

“The Fashion Channel did a fine job of introducing the fashion concept to television. Now CVN can apply its management, merchandising and distribution capabilities to help bring the popular concept to profitable reality as a solid long-term shopping channel,” CVN Chairman Theodore Deikel said.