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HSN SPLITS CALLING IT PARENT COMPANY

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By RICHARD MULLINS, The Tampa Tribune

Published: November 6, 2007

Updated: 11/05/2007 09:55 pm

TAMPA - Home shopping giant HSN will become an independent company - again.
Media mogul Barry Diller has decided to break up his New York-based conglomerate, IAC/InterActiveCorp, into five separate companies. As part of that plan, HSN will be split off as part of a retailing group that includes retailers and catalogs such as Ballard Designs and Frontgate.

By shedding leadership in New York, the move will make HSN a St. Petersburg-based retailing company, and one of the largest locally run corporations in the Tampa Bay area.
HSN employs about 2,500 people in the Tampa Bay area, primarily at a television production and customer service operation, selling everything from knives and sweaters to blenders and computers.

Diller, chairman and CEO of IAC, has spent years gathering businesses under the IAC umbrella, hoping to blend them into an interactive services giant that includes such high-profile brands as Match.com, Lending Tree and Ticketmaster.

The company simply became too complex, Diller said in a meeting with investors Monday in New York. The conglomerate, he said, "crossed 12 business sectors with 60 brands. It was confusing to every constituency, confusing to the markets, and I've thought undervalued since the beginning."

Many of the details of the spinoff plan are yet to be worked out, including how many shares stockholders will own in each company and how much debt and cash will go with each spinoff company. Diller said he hopes the breakup would occur in the second or third quarter of next year.

Wall Street seemed to applaud the plan Monday. Shares in IAC rose $2.22 per share, or 7.5 percent, to close Monday at $31.84.
HSN Chief To Keep Company On Course

For HSN, the spinoff plan is significant. The resulting company will be based in St. Petersburg and led by its current chief, Mindy Grossman, whom Diller recruited from Nike, where she helped build a multi-billion dollar women's apparel business.

For a year, Grossman has pushed for changes in virtually every aspect of HSN's operations, and that has result in new on-air graphics, new celebrity designers and revamped product packaging.

There are signs some of those moves have worked, said Sieglinde Friedman, vice president of the Electronic Retailing Association.

"Grossman is doing a lot of interesting stuff with new products, trying to attract a younger audience, when normally shop-at-home means women 50-plus years old," Friedman said. "This is a legacy she's trying to build, and it seems to be going fairly well, though it will have to build over time."

The combined retailing group that will become HSN ranks as the 91st largest retail company, with about $3.3 billion in annual revenue, just below Abercrombie & Fitch and above Dick's Sporting Goods, according to the National Retail Federation.
HSN has some advantages, said Daniel Butler, a vice president at the National Retail Federation, primarily because it has sales outlets on television, the Internet, in physical retail stores and catalogs.

"The more diversified a retail company can be, the more you can compete with rivals," Butler said.

As an independent and diverse company, HSN may get more flexibility in how it markets different products to different customers, such as letting customers themselves define what they believe is a "luxury" product.

Undervalued Stock Lead To Breakup

The idea for the breakup came to Diller during the summer while pondering why the stock market did not value the company highly, he said at a news conference Monday. During the past few months, he and other top managers sketched out what companies were best grouped together, and whether those operations were strong enough to survive alone.

While on its own, HSN has some major rivals, including QVC, which is several times the size of HSN when measured by revenue. And more cable systems are adding slots for television sales outlets, meaning more on-screen competition.

Under the plan, Diller will continue as CEO of IAC. He told investors he would have a leadership role in one or two of the spun-off companies, though he did not say which ones.

Between now and next summer, IAC will have to work out a long list of details, executives said. For example, the whole company now has one balance sheet with assets and debts. But split into five companies, the executives will have to decide how much cash to allocate to each mini-company, based on its own growth and capital needs.

Plus, shareholders now own stock in one company - IAC. But with the new deal, executives will have to decide how many shares to allocate to each company. That could result in current shareholders getting a few shares in one company and dozens in another.

Reporter Richard Mullins can be reached at rmullins@tampatrib.com or (813) 259-7919.

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