News Deal Could Jazz Up DirecTV
By MONICA HOGAN -- Multichannel News, 2/12/2001
If a widely speculated deal to merge Hughes Electronics Corp. with the SkyGlobal Network assets of News Corp. materializes later this month, DirecTV Inc. could shed its industrial roots and move closer to its California birthright as part of a major Hollywood media conglomerate.
Under a proposal leaked to the financial press last week, General Motors Corp. could reportedly spin off Hughes within the next two weeks, if everything goes according to a very complex plan.
Hughes' most coveted asset, DirecTV-which boasts nearly 10 million direct-broadcast satellite subscribers in the U.S., plus others in Japan and Latin America-would be merged with News' global satellite-television properties to form a separate, publicly traded company.
"It's common knowledge that we've been in talks with Hughes," News chairman Rupert Murdoch told analysts in an earnings call last Wednesday. "Things are progressing. I can't say any more than that."
According to reports in The Wall Street Journal and other publications last Wednesday, Hughes shareholders would own a majority stake in the new company. But Murdoch-led News would gain management control.
The combined value of the proposed company was estimated at $60 billion to $70 billion.
According to some reports, Microsoft Corp. and Liberty Media Inc. could contribute as much as $5 billion in cash to the deal.
GM spokeswoman Toni Simonetti last week denied there was a deal on the table.
Sources said a deal could be announced by the end of this month.
Hughes shareholders reacted unfavorably Wednesday, with the stock closing down nearly 11 percent to $24.75 per share.
Shareholders were disappointed that a takeover would not come "at some great premium," Bank of America Securities analyst Armand Musey noted.
A DirecTV and SkyGlobal hookup makes strategic sense because it would combine the programming strength of News with DirecTV's nationwide distribution platform.
Observers are already beginning to speculate on how the deal would change the face of DirecTV's programming lineup. But this much is clear: DirecTV has used the strength of its programming in the past to set itself apart from the competition. Its National Football League out-of-market sports package, NFL Sunday Ticket, still tips the balance in favor of DirecTV when some consumers choose a television service.
At its inception in 1994, DirecTV chose to differentiate itself by devoting more channels to pay-per-view movies than anyone else. Since then, the company has also added a small amount of original content, including pay-per-view action series and free concerts.
For its part, News has been aggressive in finding distribution for its content, whether that means carving out room for a fourth television broadcast network, or fighting for cable carriage of the now-popular Fox News Channel.
According to reports, Murdoch has given GM a quickly approaching deadline in which to approve a deal. At least one source believes Murdoch may be concerned that Liberty chairman John Malone may be prepared to make a bid for the company later this year, once Liberty disentangles itself from AT&T Corp.
Some observers last week said they think that the News deal was all but inevitable at this stage. But others were holding out hope that Hughes could find a way to work with rival EchoStar Communications Corp. to create one national DBS powerhouse.
"It would make brilliant sense," SG Cowen Securities satellite analyst Rob Kaimowitz said.
