News Corp up $1.4bn on a chance for DirecTV

[Gregg Lengling]

By Annie Lawson and agencies
December 12 2002


News Corporation picked up nearly $1.4 billion in market value yesterday, with the jewel in Rupert Murdoch's pay television crown now within reach.

Ignoring the prospect of another cash-draining acquisition, investors responded enthusiastically to reports that the media group might get another tilt at Hughes Electronics's satellite television network in the US.

News Corp's ordinary shares shot up 28c to $11.94 and the preferred shares rose 24c to $10.04 yesterday.

Hughes parent General Motors prematurely ended negotiations to sell the satellite business to EchoStar Communications yesterday, two months after federal and state regulators moved to block the deal.

The widely tipped move paves the way for Mr Murdoch to renew efforts to gain a satellite footprint in the US, fulfilling his global pay TV ambitions.

Hughes's dominant satellite TV provider, DirecTV, and General Motors spurned Mr Murdoch by agreeing last year to sell Hughes to EchoStar.

Hughes and EchoStar combined would have dominated the satellite TV market.

For a decade, Mr Murdoch has been trying to get into the satellite TV business in the US but his plans have been delayed by financial and regulatory difficulties. Now, he may get another chance at DirecTV.

A News Corp spokesman declined to comment but people close to the company have been saying for months that Mr Murdoch's interest in the US satellite market remains strong. News Corp is a major satellite TV provider in Britain and Asia.

As a bargaining tactic, GM could take Hughes off the market for a few months, but it appears unlikely that GM will want to hold on to it for long. GM wanted to sell Hughes to pay down debt. That rationale appears no weaker today.

Some fund managers believe that this time around Mr Murdoch can get a discount from his original bid, gaining significant control over the business after buying out GM's 30 per cent stake.

Patti Reali, telecommunications analyst for Gartner Dataquest, a research firm, said yesterday: "You can't discount the chance that News Corp will want to pick up with GM just where they left off."

A successful EchoStar/DirecTV merger would have created a satellite TV monopoly, prompting antitrust regulators to oppose the deal. Last October, the Federal Communications Commission refused to approve the acquisition, the first time in 36 years that the agency had challenged a large corporate deal as anti-competitive and against the public interest.

In exchange for a quick resolution, General Motors EchoStar was released from its obligation to acquire the PanAmSat stake. But it must still pay the $US600 million ($1 billion) break-up fee.

It was the best alternative "and places us in the best position to move ahead with our business", said Jack Shaw, Hughes's chief executive and president.

A General Motors spokeswoman, Toni Simonetti, was more blunt: "The point is that we have the $US600 million in the bank now, rather than later. Now we can move on."