Clock Ticks on ValueVision Merger Deal

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As the May 31 deadline approaches on a tentative merger agreement between ValueVision International Inc., Minneapolis, and National Media Corp., Philadelphia, opinions are mixed on whether the deal will close.


Dissident shareholders of ValueVision notified the company last month of their intention to vote against the deal, which led both companies to postpone their annual shareholder meetings until another deal could be worked out. If the deal does not close by that deadline, the companies are free to pursue other potential deals.


Jack Kirby, president of National Media's Quantum Television division, said he was confident that a deal would be reached between the two companies.


"I'm optimistic that we're going to move forward with a deal," Kirby said. "It's something we are working on."


The most vocal critic of the merger deal is a corporate raider who had targeted ValueVision for takeover last year. Michael J. Blake, a principal of the investment firm Robinson, Blake & George in Minneapolis, said he thinks a deal is unlikely.


"The thing that concerns me is having to merge with a company that's very short on cash and almost went bankrupt a year ago," he said. "I think that's what bothers a lot of people."


National Media has not posted a profit in more than a year, but Kirby said he sensed the company is "turning a corner." He said that eight of its last nine infomercials have been winners, but deferred any discussion of the company's financials until it releases the results of the first quarter in the next few weeks.


"We should begin to see the effect of the new shows when we release those figures in late May, early June," Kirby said.


Even though National Media may soon be in the black, Blake talks down the necessity of a merger to create the marketing synergies that managers from both companies were busy touting when the proposed merger deal was first announced earlier this year.


"There are some obvious benefits to the combination of the two companies in terms of the production, editing and fulfillment facilities and in international distribution," Blake said, "but I'm not sure that they way you get those efficiencies is to marry yourself off to somebody who seems to be not in the best financial condition. Why don't the companies work out some other business arrangement to get what they need?"


Blake said that ValueVision is an attractive takeover target because it has assets in cash from the recent sale of some of its TV station assets, stock in Paxson Communications Corp. and a remaining full-power TV station. He envisions buying the company for about $75 million to $85 million, turning it around and selling it for a much higher price.


"The company has a lot of liquid assets there and really hasn't made any meaningful money in its main business since inception," Blake said. "The thing seems to have been poorly run for many years."


He said the company needs to do what other shopping channels have been doing for several years: reducing the amount of jewelry offers and getting into a broader array of products. He also wants to see the company exploit opportunities on the Internet, as K-Tel International Inc. started to do this month as its stock hit record levels.


The company also needs more cable carriage than the 11 million full-time equivalent TV households it now reaches. The company is said to have alienated the industry in its schizophrenic policy of trying to woo cable system operators in some markets while using "must-carry" laws to force their way on to systems in other markets.


To turn the company around, Blake said ValueVision needs a more dynamic management team. The company appointed a former Montgomery Ward executive, Gene McCaffery, as its new president and CEO, but he has remained mostly invisible. He declined an interview with DRTV News through his secretary.


Blake said that although McCaffery was included in the road show that was intended to drum up shareholder enthusiasm, he failed to make much of an impression when he was introduced by Robert Johander, ValueVision's outgoing chairman, and Robert Verratti, National Media's outgoing chairman.


"You've got Johander and Verratti going out putting on the show for the stockholders; Gene McCaffery says 'hello' and his part of the script is done," Blake said. "I think shareholders were particularly disappointed that McCaffery didn't have a speaking role. In fairness to Gene, he wasn't on board yet -- but you know what, leave him at home then. Don't bring the new chief out there if he has nothing to say."
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