Surprise Bid Derails QVC Merger With CBS : Communications: Cable TV firm Comcast, which helped found the home shopping network, raises ante to $2.2 billion.

In a dramatic move, a key shareholder Tuesday pulled the rug out from under QVC Chairman Barry Diller’s plan to sell the home shopping network to CBS Inc., where Diller was to become chief executive.

Comcast Corp., the Philadelphia-based cable TV company that helped found QVC, announced that it is willing to buy all of QVC’s outstanding shares for $2.2 billion, or a 22% premium over Tuesday’s closing price.

Industry executives said the Comcast bid will derail the CBS-QVC merger unless CBS sweetens its offer to QVC shareholders. In explaining their surprise bid, Comcast executives said they are motivated by a long-term strategy to participate more fully in cable TV programming.

“If the CBS transaction goes through, we’re a disenfranchised investor,” said Julian Brodsky, Comcast’s vice chairman, in a telephone interview. As a cable TV company, Comcast would be forced by federal rules to limit its voting stock to less than 5%, and it would be prevented from even serving on the CBS board.

Diller, who lost a bruising, six-month battle for Paramount Communications earlier this year, issued a statement late Tuesday saying: “All the ironies aside, I said at the outset that if someone else wanted to bid for QVC, we would, of course, deal with it. And we will, with the only consideration being the best interests of the QVC shareholder.”

Wall Street and Hollywood executives saw more than a little irony in Comcast’s move, since it was Comcast President Brian L. Roberts who hotly pursued Diller to run the company two years ago. Said one high-level observer: “Brian Roberts has worshiped at the feet of Barry Diller for the past two years. . . . This has got to be political.”

Unlike CBS’s all-stock proposal, the Comcast offer would provide QVC shareholders with considerable cash. For each share of QVC, Comcast is offering $37 in cash and $7 of a new series of Comcast convertible preferred stock. Since Comcast already owns 8.6 million of QVC’s 39.2 million shares, the acquisition would cost Comcast about $1.6 billion.

Speculation swirled over CBS Chairman Laurence A. Tisch’s next move, as analysts and industry executives debated whether he will fight to win QVC or its highly respected chairman. One unconfirmed report had the network withdrawing as early as today.

Alan Kassan, an analyst at Morgan Stanley in New York, said Diller could decide to take his profits from a QVC stock sale and accept a lucrative employment package at CBS, along the lines of the deal enjoyed by Walt Disney Co. Chairman Michael D. Eisner, for example. Or CBS could decide to “tweak the offer” to include some cash or greater value to QVC shareholders.

Elsewhere on Wall Street, the reaction was mixed. “I don’t like it,” said Jessica Reif, an analyst with Oppenheimer & Co. in New York. “The value of QVC with CBS is so much greater than as a stand-alone” company. Moreover, Reif noted, “the real question is what Tele-Communications Inc. is going to do.”

But John Tinker, an analyst with Furman Selz in New York, was more upbeat. “If you believe in electronic retailing, it makes all the sense in the world,” he said. Tinker noted that Comcast faces competition for cable TV subscribers from Bell Atlantic, the Philadelphia-based Baby Bell, and wants to control as much of the programming as possible. “Control of content is king,” Tinker said.

Both TCI, the large Denver-based cable TV operator, and Comcast own about 17% of QVC’s common stock. TCI, however, would incur huge capital gains tax taxes if the company is sold. A source close to Comcast said there may be ways to minimize the impact. A TCI spokesman declined to comment.

Several of the players involved in the QVC battle could come face to face today, since they are coincidentally set to convene in Sun Valley, Idaho, for the annual blue-chip investment conference sponsored by Herbert Allen Jr. of Allen & Co.

Acquiring the shares it did not already own would be the second big deal in less than a month for Comcast. In June, the cable operator won an auction to acquire the U.S. cable systems owned by Canadian-based McClean Hunter Ltd. for $1.27-billion. The deal, which would give Comcast 550,000 cable subscribers, would make it the third largest cable operator in the United States.

In a telephone interview from New York, where the QVC board will convene today , Comcast’s Roberts said his company views QVC as an essential element for Comcast’s growth. With QVC, he said, Comcast will generate nearly $900 million in annual cash flow--nearly half of which will be in unregulated businesses. Such a strategy is essential for cable TV operators who have endured two rate rollbacks from federal regulators.

Roberts said Comcast’s banks have already pledged $1 billion for the QVC purchase, and the company expects to raise an additional $300 million from the sale of its 19.9% interest in Heritage Media. Comcast has been assured that it could raise another $200 million in QVC debt, and it expects to issue the $275 million in Comcast new convertible preferred stock.

QVC shares added 25 cents to close at $36 Tuesday, before the offer was announced. CBS fell $2, to $300. Comcast Class A shares added 12.5 cents, to $16.625.