Backchannelmedia

St. Petersburg Times

By Mark Albright, St. Petersburg Times, Fla.

Jun. 26--No sooner had Barry Diller unveiled a big stock buyback at Expedia Inc. than Wall Street buzz shifted to whether the e-commerce mogul will shake up his IAC/InterActiveCorp empire next by selling HSN.

The problem triggering the speculation: IAC stock slumped so low that the parts are worth more separately than investors value the entire company, according to an estimate by Stifel Nicholaus analyst Scott DeVitt. He expects some "material corporate event" at IAC within six months. One option: off-loading the St. Petersburg TV shopping network, IAC's largest business unit.

The most likely buyer is said to be John Malone's Liberty Media Corp. After all, Liberty owns 19 percent of IAC, handed HSN off as the cornerstone for Diller's e-commerce empire in 1995 and already owns HSN rival, QVC, outright.

Diller, 65, who has repeatedly resisted pressure from Wall Street to dump HSN, is not talking. But, for the first time, he recently took steps to trim IAC's reliance on TV shopping for so much of its cash flow.

Diller closed America's Store, HSN's second network, which he has failed to turn into a growth vehicle. Then he sold HSN's European operations for $270-million.

Without HSN, IAC would be more of a pure Internet strategy composed of 60 online ventures including Ask.com, Match.com, CitySearch, Ticketmaster and LendingTree. After that, it's a hodge-podge of startups, the sort of combination that many Silicone Valley-obsessed analysts urged Diller to make into something since the dot-com bust.

But giving up HSN would cost Diller's virtually debt-free IAC the source of half of its revenues and 43 percent of its profits. It would expose IAC to more investor doubts about Diller's ability to compete with the deeper pockets of online rivals AOL, MSN, Yahoo and reigning Internet search behemoth Google. And it would put pressure for profits on many ventures that have none.

While Diller invested in turning around HSN, his newest management team's effort has yet to pay off. Diller has been gradually shifting HSN TV shoppers to buy from hsn.com and using the network as a testing ground for retailing in a future converged world of TV and the Internet. He has repeatedly said the retailing discipline HSN instills is crucial to his thought process in building an e-commerce empire.

Whether HSN is a good fit with QVC is another matter. Supposedly such combinations create cost efficiencies. Mike George, QVC's chief executive, sees yearly savings of only less than $20-million.

"If HSN came at an extraordinarily low price, we would consider it," he said. "But we would balance that against getting bogged down by a big management distraction for limited cost take-out synergies. Frankly, we don't see a lot of them."

Stalled for months, Expedia shares soared after Diller announced last week a $3.5-billion stock buyback of 42 percent of the online travel site. That will dramatically increase Expedia debt, but Diller's stake would rise to 40 percent as repurchased shares are taken out of circulation while he keeps his.

A few stock bloggers speculate Diller could mimic the Expedia result by giving up HSN in return for Liberty's 19 percent interest, then retire the shares. That would also further distance Diller from the whims of Malone's Byzantine wheeling and dealing in cable, phone and other communications industries. Malone is an IAC director and has given Diller power to vote most of Liberty's stake in IAC.

The market has yet to buy into the HSN speculation. IAC shares, which trade 15 percent below a March high, closed Monday at $34.60, up 27 cents and within a dollar of two weeks ago.

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