Advantages Seen in National Media, ValueVision Merger

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What happens when an unprofitable infomercial marketing company merges with a TV shopping company with a history of operational losses? Synergy, according to pronouncements from both companies.


National Media Corp., Philadelphia, and ValueVision International Inc., Eden Prairie, MN, announced a merger last week that would form a new, as yet unnamed, publicly traded concern whose combined sales exceed $500 million. ValueVision will own about 55 percent of the company, and National Media shareholders 45 percent.


Executives from both companies touted the deal, which is expected to close in the spring, as a way to save on administrative and fulfillment costs and to provide necessary financing for infomercial marketing programs.


"The excitement for us is that we will go from being an infomercial-only company, while [ValueVision goes] from shopping and cataloging into a truly globally diverse direct marketing company," said Bruce Boyle, spokesman for National Media. "Together, we've got expertise in long form, in home shopping, catalogs and the Internet."


The deal, which followed an aborted merger attempt of the companies in 1994 that resulted in an out-of-court settlement between the two, was greeted with cautious optimism by analysts and industry observers.


"It's not the two best companies in the world merging," said George F. Sutton, an equities analyst in the Dallas office of Dain Rauscher Inc., "but I think there are a lot of issues that each has that can be addressed by the other firm. National Media's weakness has been product fulfillment -- that's a strength of ValueVision."


Sutton also said that National Media will give ValueVision access to overseas markets, where home shopping is gaining acceptance, but was guarded about any recommendation on the newly combined companies.


National Media posted losses of $27.9 million on net revenues of $121 million for the six months ending Sept. 30, the most recent period of available data. The company raised $20 million in a private equity placement and applied those proceeds toward developing new infomercial programs that are now entering national rollout.


Its PVA 10X mop product, while cooling somewhat in the United States, will be distributed overseas this year, while its Cyclone exercise device is selling well this quarter. Other products that are reported to have sold well or tested successfully include cookware branded by T-Fal, the Iron Quick iron and Time Works exercise device.


Boyle said inventory and media expenditures on those programs required further financing, which was provided through a $10 million loan agreement with ValueVision. The country's third-largest shopping channel reported $100 million in current assets on Oct. 31, including about $18 million in cash.


Although ValueVision has posted operating losses for the last two years, it is considered cash-rich following the sales of TV station assets to Paxson Communications Corp., the station group in West Palm Beach, FL.


"There are a lot of things that need to go right for me to get super-excited about National Media prospects," Sutton said, "but I do think that National Media's prospects are significantly enhanced by the merger. Without it, I'm not sure that I would be terribly bullish."
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