On Aug. 17 Liberty Interactive Corporation (QVCA, QVCB, LVNTA, LVNTB) announced the completion of its acquisition of Zulily (ZU, Financial). Following the Aug. 17 announcement Zulily’s stock has jumped 48.05% to end the day at $18.61 on Aug. 18.
In the news release on the final terms of the deal Liberty Interactive reported that it will purchase the outstanding shares of Zulily for $18.75 per share. The Zulily shares will then be attributed to Liberty Interactive’s QVC Group (QVCA, Financial) and the Zulily business will also be integrated within the QVC Group.
On Aug. 5 Zulily reported its second quarter earnings which provided insight into the business to be integrated with Liberty Interactive’s QVC. For the second quarter Zulily reported revenue of $297.6 million, up 4% from the comparable quarter. Net income for the quarter was $3.5 million down from $7.8 million in the comparable quarter. Earnings per share for the quarter were $0.06 also down from the comparable quarter which reported earnings per share of $0.09. For the third quarter management projected net sales of $300 million to $325 million.
The Zulily merger with Liberty Interactive’s QVC will provide a number of synergies for both companies. For Zulily it will benefit from the technology and distribution platforms that QVC currently has in place. For QVC it will provide a brand expansion that covers television and the internet. Additionally, both companies will benefit from the diverse demographics of the two companies with Zulily’s average customer age ranging from 25 to 35 and QVC’s customers more broadly dispersed from 35 to 65.
After the shareholder transaction takes place Zulily shareholders will receive $9.375 in cash and 0.3098 newly issued equity shares of QVCA for each Zulily share. Alibaba (BABA, Financial) is currently a shareholder of Zulily which will be a significant factor for Liberty Interactive once the shareholder transaction is completed. Alibaba currently owns 11,500,000 shares of Zulily after a May buy in following a dip in the company’s share price. Following the share buy in Alibaba owns 9.3% of the company for a total equity value of $143.4 million.
With the acquisition of Zulily, Liberty Interactive and its QVC business will become a more diversified provider of consumer goods through both television and internet channels. Overall, the added revenue from Zulily and integration synergies are likely to significantly improve the value of the QVC Group business and its stock price which is currently trading at $29.48. For the third quarter analysts have an average target price for the stock of $35.88 with a revenue estimate of $2.82 billion and an earnings per share estimate of $0.53.
