Home Shopping Rivals Prepare for Merger : Television: Under a stock swap deal valued at $1.16 billion, QVC would acquire HSN and operate four channels.

In a move that would consolidate the burgeoning TV home shopping industry, QVC Networks Inc. proposed Monday to acquire rival Home Shopping Network in a stock deal valued at $1.16 billion.

The merger would concentrate nearly the entire multibillion-dollar home shopping industry in the hands of former Hollywood executive Barry Diller and cable TV giants Tele-Communications Inc., Comcast Corp. and Time Warner Inc.

Diller, with backing from TCI and Comcast, took over QVC last year and has set about revamping the home shopping channel with upgraded products and on-air looks.

Analysts, however, had long expected that HSN and QVC would merge because of the common ownership of the two companies. Denver-based TCI, through its affiliate Liberty Media Corp., controls 71% of HSN’s voting stock in addition to owning a 22% equity stake in QVC. Comcast, the country’s fourth-largest cable TV operator, owns about 11% of QVC. Time Warner owns 6%.

Indeed, HSN and QVC have held on-again, off-again merger talks for several years, even before Liberty acquired its separate stakes. Those discussions were slowed, however, when HSN and its chairman, Roy M. Speer, became embroiled in a financial scandal earlier this year.

QVC, after the merger, would operate four TV home shopping channels--two previously owned by QVC and two owned by HSN--with combined revenue of more than $2 billion and cash flow of $300 million. Under the proposed terms, QVC would exchange one share for every five shares of HSN.

As part of the deal, QVC would also get an option to buy from Liberty 2 million shares of Silver King Communications, a group of 12 TV stations. The stations broadcast HSN programming but may in the future serve as a “nucleus” for a new TV network, sources close to the deal said, if federal cable broadcast ownership restrictions are lifted.

Diller said the proposed merger would “ultimately push forward the entire evolution of electronic retailing.” Diller hopes eventually to attract higher-income users who do not traditionally use home shopping channels with more expensive products.

“It certainly makes sense from Liberty’s point of view to put these two companies together rather than own them separately,” said John Field, a cable TV analyst with Hanifen Imhoff in Denver. “They get the best of both worlds.”

QVC would get access to HSN’s sophisticated phone answering system, which can handle as many as 14,000 calls at once. HSN would be able to utilize QVC’s superior order fulfillment and shipping system. Analysts estimate that a merger could save upward of $50 million in administrative and corporate overhead costs.

Diller’s partners all along have stated their desire to use QVC as “leverage” for the launch of other TV home shopping and program services. Within the last few months, QVC has forged joint ventures for new TV home shopping channels in Great Britain, Mexico and Japan.

The company is said to be close to a similar agreement with a cable company in Canada.

Wall Street on Monday signaled its approval of the proposed merger. QVC stock shot up $2.50 to $67.75 on the NASDAQ system. HSN gained $1 to $13.625 on the New York Stock Exchange, its highest price since 1987.

Liberty Media Corp., which is controlled by TCI Chief Executive John Malone, slipped 12.5 cents on the NASDAQ.

The proposed merger also solidifies Diller’s and his partner’s control over HSN.

After the merger--which is subject to regulatory and shareholder approval--HSN’s board will be dissolved and replaced by the QVC board. Speer will play no role in the combined entity, sources said.

Speer is under investigation by a federal grand jury in Tampa, Fla., for alleged financial misdeeds, including paying hush money to a former executive who had threatened to expose him.

Gerald F. Hogan, a former senior executive of Turner Broadcasting System who was brought in as chief executive of HSN earlier this year, has been trying to revitalize HSN amid revelations of one financial scandal after another. Diller called Hogan a “first-rate executive” and expects him to continue in a senior management role.

Liberty Media acquired control of HSN in December when it paid Speer $160 million in cash and stock to acquire a 23% equity stake and 65% voting control of the channel. Liberty’s subsequent bid to buy all the remaining shares it didn’t own for $640 million was withdrawn after allegations of financial impropriety first surfaced. Then, in an effort to restore confidence in the badly shaken company, Liberty Media agreed to pay $105 million last spring to boost its equity stake to the current 41.5% level.

Some analysts expressed concern that the Federal Trade Commission or the Department of Justice might block the merger on antitrust grounds, since it would essentially concentrate the nascent TV home shopping industry in the same hands.

QVC officials expressed optimism that the plan will not run into regulatory problems, because the Justice Department has already approved Liberty’s previous investment in HSN. Liberty Media is an investor in several cable TV networks, including Encore, Black Entertainment TV and American Movie Classics.

TV home shopping, although nearly a decade old, took on sudden luster with Diller’s surprise entry into the business eight months ago. A former studio chief at both Fox and Paramount, Diller has been sprucing up QVC’s on-air look in an effort to shed its image as a bargain basement retailer.

How Diller will change HSN’s two home shopping channels is not clear. But people close to the proposed transaction say he foresees a proliferation of segmented, narrowly targeted TV shopping channels, appealing to a broad range of lifestyles and incomes.

For example, plans are already under way to reformat the Fashion Channel, a second home shopping network owned by QVC that reaches 7.4 million homes.

The revamped channel is expected to target health-conscious adults with fitness and exercise products.

QVC, which reaches 45 million homes, had revenue of $1.07 billion for the fiscal year ended Jan. 31. HSN, in 33 million homes, had revenue of $1.09 billion in the fiscal year ending Aug. 31.