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Liberty Interactive Corporation Message Board

  • e9racer e9racer Sep 10, 2006 3:25 AM Flag

    LM now controls 53% of GSIC votes

    7 Sept - Barron's

    LIBERTY MEDIA IS THROWING more weight behind GSI Commerce (GSIC) as the online-retail-services company burns through cash to accommodate new clients

    Liberty, which owns assets such as QVC and holds interests in IAC/InterActiveCorp and Expedia, disclosed it acquired 730,000 shares of GSI for $9.8 million over the past two weeks

    SEC filings show Liberty spent $6 million to acquire 430,000 GSI shares (priced at $14) on Aug. 23 pursuant to a total return swap agreement with Bear Stearns

    Under the terms of the swap agreement, Liberty lost money because it was required to pay Bear Stearns a period interest-derived fee based on the benchmark London interbank offered rate "plus any depreciation in the shares below $14 per share." GSI shares have traded under $14 since early June

    Liberty spent $1.08 million to purchase 90,700 shares in the open market at prices from $11.42 to $12.43 on Aug. 28 to 30. The company then doled out another $2.71 million to buy 209,306 shares in a private transaction at $12.95 per share

    Following these acquisitions, Liberty beneficially owns more than 9.2 million shares of GSI, but claims voting power over 24.8 million shares, or a 53.3% stake, based on voting agreements with Michael G. Rubin, GSI's chief executive and chairman, and private-equity firm Softbank Capital Partners

    The May proxy filing shows Rubin holds 7.4 million shares, or a 16.13% stake, and Softbank affiliates own 8.1 million shares, or 18.18%. There were 45.3 million outstanding shares of GSI as of Aug 1

    Given Liberty is adding to its already large stake in the company -- and even buying on the open market -- Ben Silverman, director of research at, says: "I think it's positive to see Liberty sticking around the name as opposed to cutting it back"

    He notes GSI complements Liberty's television retail operations in QVC. "Strategically [Liberty's] ownership stake [in GSI] makes sense, but the question is what's the end game here," adds Silverman

    GSI shares have had a stellar run, racing from a mere $2 in early 2003 to more than $20 near the end of last year. But the stock has been bogged down by escalating capital expenditures for GSI's e-commerce business. The stock has fallen 12% so far this year and is down 29% over the past 12 months

    Nearly half of GSI's revenue is generated from selling sporting goods online, according to Hoovers. GSI recognizes such revenue entirely as opposed to its faster-growing online retail-services business

    Three years ago, GSI started providing e-commerce services to brick-and-mortar retailers for a fee. Toys "R" Us signed up this spring after the retailer ended a relationship with

    In all, GSI management said this summer that all sales conducted through its sporting goods and e-commerce operations will total $2 billion by 2008; GSI will derive its own revenue from those sales

    Needham & Co. senior analyst Mark May expects the Toys "R" Us business to create an inflection point leading GSI to generate enough free cash flow in 2007 to offset heavy capital investments that have dogged the bottom line. He estimates online sales from the toy store to make up 5% of GSI's estimated 2007 revenue of $690 million and 10% to 15% of estimated gross profits of $312 million

    May suggests Liberty may be interested in forging a corporate relationship with GSI instead of a strictly financial one to elevate QVC's online presence. Or, pointing to Liberty's acquisition of additional GSI shares, "maybe it's a sign that they are interested in taking the whole thing over at some point," he adds

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