LINTA UPDATE – QVC/E-COMMERCE SEPARATION ANNOUNCEMENT

Funny how quickly things work out sometimes. LINTA management announced today that they plan to separate QVC from LINTA’s e-commerce assets in a new tracker deal, which I guess I sorted of predicted in the write-up I posted two days ago. LINK: http://ir.libertyinteractive.com/releasedetail.cfm?ReleaseID=796097

The way the deal will be structured – QVC and LINTA’s 38% stake in HSN will be one part (New tickers QVCA & QVCB) ; the e-commerce portfolio will be another part (new tickers LDCA & LDCB). My understanding is that they are effectively turning two tracking stocks (LINTA & LVNTA) into three (QVCA, LDCA & LVNTA). Sounds complicated?

Basically this deal will turn QVC into a pure-play with its own SEC filings that people will actually bother to locate & read, which I think is huge news because now people can just look at QVCA and say this is basically the same thing as HSN (which is publicly traded and richly valued) but only better and should probably deserve to trade at a premium. The e-commerce assets will also be able to highlight its high growth profile and hopefully re-rate to where their peers trade at (mid to high teens x EBITDA). Also, currently LINTA disclosure lumps the financial results of all of the e-commerce sites into one line and does not do a very good job explaining these businesses; once the spin prospectus is filed there will be a dramatic improvement in transparency and quality of disclosure of these smaller assets so investors can gain a better appreciation for their business models.

Other than that, LVNTA will be spinning off its stake in Tripadvisors and will be making portfolio arrangements by making some minor asset transfers with LINTA’s e-commerce group (LDCA) to give the new vehicles more visibility. The effects of this are fairly immaterial to LINTA shareholders.

I think management is probably quite frustrated with where the market is valuing QVC and their plan is to give QVC its own stock so the multiples can be raised to where HSN is, which will make it easier for them to do a merger. LINTA also updated on its share repurchase program. They bought a little over $200 mil in the last two months and I expect them to accelerate that throughout the end of the year given that they still have $500 mil outstanding for the year but only 3 months to complete the program.

The stock was up 7% today but given the simplification of the capital structure this is gradually turning more and more into a no-brainer for a long-term investment. I will be buying more and will follow up with a spin-off model some time next week.

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