Liberty Media sees weakness at QVC, eyes new deals

By Michele Gershberg

NEW YORK (Reuters) - Liberty Media posted lower operating profits on Thursday at its key QVC shopping channel due to weakness overseas and a shift to consumer electronics, and said it was eyeing electronic commerce acquisitions worth up to $5 billion.

The company controlled by cable mogul John Malone is embroiled in a legal dispute with its IAC/InterActiveCorp and just completed an asset swap with Rupert Murdoch's News Corp for control of U.S. satellite operator DirecTV.

That has not deterred it from contemplating new corporate moves, including preliminary talks on an asset swap with other companies in which it holds stakes.

"As far as size, I think anything from $50 million to $5 billion," Liberty Chief Executive Greg Maffei said on a conference call with analysts, regarding acquisitions.

"While that sounds like an enormous range, if you start looking at how many attractive, independent, stand-alone e-commerce businesses at reasonable valuation there are that fit that criteria, the field narrows quickly."

Maffei said Liberty was open to various e-commerce categories, but would be most interested in companies that could be promoted via its QVC cable shopping network.

QVC's fourth-quarter revenue rose 4 percent to $2.33 billion. But operating cash flow fell 5 percent to $531 million and operating income fell to $396 million from $419 million a year ago.

QVC saw particular weakness in Germany and in Japan, where enforcement of laws relating to health and beauty products have forced it to reduce sales of those products. Its sales mix in the United States shifted to consumer electronics from higher margin clothes and jewelry.

"Over time, we think we can continue to maintain relatively stable margins," QVC CEO Mike George said. "We think the fourth quarter result was really exaggerated from what we would normally expect to see."

Revenue at Starz Entertainment rose 3 percent to $265 million, while operating cash flow fell 4 percent to $48 million. Operating income fell to $30 million from $46 million.

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Liberty Media operates under two main tracking shares to allow investors to follow its businesses more closely. Liberty Interactive Group is home to QVC, while Liberty Capital includes Starz.

After completing its swap for DirecTV on Wednesday, Liberty will add a third tracking stock, Liberty Entertainment, to begin trading on March 4 under the Nasdaq symbol "LMDIA." Liberty Entertainment will comprise its DirecTV holding, Starz, about $1 billion in cash and $551 million in tradable debt.

Liberty Capital will encompass holdings in such companies as Time Warner Inc and Sprint Nextel Corp. Of the bunch, Maffei said a new asset swap was most likely with Time Warner.

"While nothing is imminent, you can imagine them being a seller of assets that we might like and frankly might understand better or might be able to run better, given the media characterization," he said.