CBS Drops Out as Comcast Bids for QVC


CBS on Tuesday abruptly abandoned its plan to merge with QVC after a rival bidder said it has offered $2.2 billion for the home shopping network.

The rival bid came from Comcast Corp., the Philadelphia-based cable TV company that helped found QVC and owns about 17% of its stock. Comcast said that it is willing to buy all of QVC's outstanding shares for a 22% premium over Tuesday's closing price.

CBS Chairman Laurence A. Tisch said in a telephone interview that he did not want to be drawn into a bidding contest. "It's not my style," said the 71-year-old Tisch, who made it clear that he is also abandoning his plan to bring in QVC Chairman Barry Diller as CBS's new chief executive.

In explaining their surprise bid, Comcast executives said they are motivated by a long-term strategy to add cable TV programming to the company's cable systems and cellular telephone holdings.

"If the CBS transaction goes through, we're a disenfranchised investor," said Julian Brodsky, Comcast's vice chairman, in a telephone interview.

Although Comcast would have owned about 9% of CBS after the merger, its voting stock would be limited to less than 5% and it would be prevented from even serving on the CBS board. Federal rules restrict cross ownership of cable and broadcast TV properties.

Comcast is clearly prepared to lose Diller as QVC's chief executive, since the QVC chairman has vowed to be his own boss and the Comcast bid is not contingent on his staying. Unless other suitors materialize for QVC, Diller may set himself adrift.

Indeed, sources said, Diller learned about the bid when Comcast Chairman Ralph Roberts and his son Brian, Comcast's president, met Diller's corporate jet at a New Jersey airport when it landed late Tuesday afternoon. Diller was headed to a CBS board dinner.

Comcast's offer to pay $44 for each QVC share "really puts pressure" on Diller to accept the deal because he could reap close to $100 million from his QVC stock options, one analyst said.

Wall Street and Hollywood executives saw more than a little irony in Comcast's move, since it was Comcast President Roberts who hotly pursued Diller to run the company two years ago and backed QVC's losing six-month battle for Paramount Communications earlier this year.

Diller issued a statement 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."

Meanwhile, sources said CBS may still press ahead with a plan to give more than $1 billion to its own shareholders. CBS last month proposed to pay $175 in cash for each CBS share before swapping stock with QVC. The CBS board is scheduled to meet today in New York.

Tisch declined to comment on any refinancing, but insisted that CBS has not put itself up for sale. Even with the QVC merger, CBS shareholders would have remained in control. Still, speculation has swirled that Walt Disney Co. or other entertainment companies remain interested in acquiring a network.

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.

Comcast's stock, however, may be pummeled today by media investors who favored the CBS-QVC merger and don't want to see Diller leave QVC. At the same time, Comcast shareholders may fret that their company is taking on too much debt.

One large investor lamented Tisch's decision to withdraw, saying that CBS could have ridden out the storm and persuaded many QVC investors that a deal with CBS was favorable. Tisch, however, dismissed such a notion, saying: "Stand out there for 30, 60 or 90 days and propagandize that our bid is better?"

John Tinker, an analyst with Furman Selz in New York, was 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.

"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."

TCI, the large Denver-based cable TV operator, also owns about 17% of QVC's common stock. TCI, however, would incur huge capital gains 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.

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 Maclean 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 Brian 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.

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