IAC/Interactive: Sale Of Home Shopping Network To Liberty Seen Possible

Very interesting note Wednesday from Scott Devitt at Stifel Nicolaus on IAC/Interactive Corp. (IACI).

Devitt raised his rating on the company to Buy from Hold. His basic thesis is that there is a 60% chance the company will undertake a “material corporate event” within six months. Devitt notes that the company has a similar ownership structure to Expedia (EXPE), which recently announced plans to buy back a huge chunk of its own shares, “effectively…attempting to go private while still trading as a public company.”

Devitt’s theory is that Interactive - like Expedia, it is run by Barry Diller, with John Malone’s Liberty Interactive (LINTA) holding a 22% stake - could either go private in an LBO (unlikely, he says); do an Expedia-style public market recap and buy back 35% of its shares (30% probability in his view); or undertake an asset exchange in which it hands over HSN (a/k/a Home Shopping Network) to Liberty, which owns HSN rival QVC (again, 30% probability).

Writes Devitt:

We believe the most value-creating scenario would be for Diller and Malone to agree on a transaction value for HSN domestic, allowing IAC to become a pure Internet company allowing interactive shopping powerhouse LINTA to fix HSN.

I would remind you that Devitt was early in predicting Expedia’s leveraged buyback..

IACI 1-yr chart: