Liberty Media Corp. agreed Thursday to spend $7.9 billion to purchase control of the hugely profitable home shopping channel QVC, a move that comes on the heels of the company's efforts to snap up Vivendi Universal's U.S. entertainment assets.
The timing of the purchase from Comcast Corp. -- which will give Liberty the 57.5% of QVC that it doesn't already own -- caught many by surprise. That's because Liberty, controlled by cable magnate John Malone, was thought to be focusing on the Vivendi properties, which include the USA and Sci Fi cable channels and Universal film and television studios.
Still, analysts say that with $15 billion in deal-making leverage, Malone has the resources to pull off both purchases at once -- and many predict he will.
"I don't think it is an either-or proposition," said Matthew Harrigan, managing director of Janco Partners, an investment banking firm, in Denver.
The acquisition of the world's largest home shopping channel helps Malone to meet his goal of converting Liberty into an operating entity rather than a mere portfolio manager.
Meanwhile, a purchase of Vivendi's assets would further catapult Liberty into the big leagues of media, although the Englewood, Colo.-based company would still lack the strength of such behemoths as AOL Time Warner Inc., Viacom Inc. and Walt Disney Co.
For Comcast, the sale dramatically improves the cable company's balance sheet by reducing its towering debt just eight months after its $30-billion acquisition of AT&T Broadband, one of the largest in media history.
"This gives Comcast huge liquidity," said Jessica Reif Cohen, an analyst at Merrill Lynch.
Liberty spokesman Michael Erickson didn't return a call seeking comment.
Liberty is among five suitors vying for the Universal entertainment assets, with Vivendi asking for minimum bids of $11.5 billion, sources say.
The other bidders include an investment group headed by Edgar Bronfman Jr., Metro-Goldwyn-Mayer Inc., Viacom Inc. and General Electric Co. subsidiary NBC.
Liberty has some financial flexibility going forward. Because of the way the QVC deal is structured, Liberty can pay a combination of stock, cash or a three-year note, according to Comcast. The stock portion is capped at 7.5% of Liberty's shares outstanding, worth about $2.56 billion.
QVC's ample cash flow of roughly $900 million a year also will allow Liberty to borrow an additional $4 billion, Cohen said.
