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Who Wants to Buy DirecTV?

Started by Gregg Lengling, Wednesday Mar 05, 2003, 01:02:42 PM

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Gregg Lengling

A move by cable/technology holding company Liberty Media to potentially sell off its stake in shopping channel QVC -- which is majority-owned by cable giant Comcast (Quote, Company Info) -- has fueled speculation that Liberty may be looking to finance a bid to buy satellite broadcaster DirecTV.

But could John Malone, the deal-making chief of cable/technology holding company Liberty Media (Quote, Company Info), be looking to beat News Corp. CEO Rupert Murdoch to the punch on buying DirecTV, or looking to join Murdoch's bidding?

Sources close to the situation say Murdoch, whose media empire includes British satellite company BskyB, is close to finalizing a deal to purchase Hughes Electronics (Quote, Company Info), the parent company of DirecTV, which it tried to purchase before.

The development comes amid a flurry of earnings news and financial maneuverings among some players in the satellite industry, and as Hughes continues to unwind its DirecTV Broadband operations.

Hughes on Monday said it would record a $23 million pre-tax charge as a result of terminating its alliance with America Online (Quote, Company Info) to provide bundled broadband service to AOL subscribers.

In a public filing, Hughes said it ended the agreement to provide satellite-Internet access service with AOL, which it struck in June of 1999. As a result, Hughes and its subsidiaries are released from spending up to $1 billion in marketing and promotion costs to provide bundled broadband services.

However, the company also said it would continue providing satellite-Internet access to current AOL broadband subscribers as it works out a transition plan to an unbundled service. The companies also may strike new business relationships in the future, the filing said.

Hughes acquired DirecTV Broadband in April 2001. But in December it said it would close the division within 90 days, largely because not enough satellite Internet access customers had signed up for the service.

Separately, EchoStar Communications (Quote, Company Info), which owns the DISH satellite network, said it recorded a $690 million break-up fee in the fourth quarter, which was related to its now-scuttled plan to merge with Hughes/DirecTV in an $18 billion deal that regulators eventually blocked.

Its overall loss for the quarter came to $715.5 million (45 cents per share). For the year, it took in $1.32, up by 12.8 percent from $1.15 billion the prior year.

Now, Liberty has triggered an option in the company's 42.5 percent stake in QVC, which could eventually result in an auction of the shopping channel, and which could be used for a bid at DirecTV, analysts noted.

Jessica Reif Cohen, media analyst for Merrill Lynch, in a comment published Monday, estimated QVC's market value at between $13 billion and $14 billion. She valued Liberty's minority interest at between $5.5 billion and $6 billion.

But any possible sale of Liberty's 42.5 percent interest in QVC would only follow an option on the part of Comcast to first purchase the assets from Liberty. After that right of refusal comes Liberty's option to buy out Comcast's majority stake. Or, Cohen noted, it could go to auction.

Whatever the intention Malone is signaling with the QVC stake, "it's clear that [he] is eager to start driving some vehicles again," noted Richard Doherty, a director for media/technology consultancy Envisioneering Group.

"No one has a greater command to create clever business structures to leverage and sometimes even bluff deals. And there are not many satellite opportunities in the U.S.," he said. "Plus, Hughes is not worth as much as when Echostar tried to buy it, and Murdoch may be offering up different ratios of cash. It is well known that he wants to buy DirecTV as cheaply as possible."

And with a possible war looming in Iraq, Doherty noted that Murdoch may be eager to get a deal in place for DirecTV. "He knows that in times of war, there's an opportunity for news, and that people want to escape with entertainment."
Gregg R. Lengling, W9DHI
Living the life with a 65" Aquos
glengling at milwaukeehdtv dot org  {fart}