Murdoch: DirecTV/EchoStar Has Problems

11/07/2001 7:09 AM Eastern

News Corp. chairman Rupert Murdoch sounds like he's ready to move on after
having lost the bidding war for DirecTV Inc.

But Murdoch, in a conference call with reporters Wednesday discussing News
Corp.'s earnings, sounded slightly bitter, anyway.

News Corp. dropped out of the bidding for DirecTV parent Hughes Electronics
Corp. one week ago Saturday after 18 months of negotiations.

The prize swung to EchoStar Communications Corp. after chairman Charlie Ergen
personally guaranteed one-half of a $5.5 billion cash component in his $25.8
billion offer for Hughes.

Murdoch said News Corp. had already been recommended by the four bankers
involved in the deal and by the management of both DirecTV and Hughes, adding
that Hughes parent General Motors Corp.'s board was three minutes from voting on
the winner when it received a call from 'Detroit.'

According to sources close to the situation, that call was from GM chairman
Jack Smith.

GM declined to comment. 'Our negotiations with Hughes, News and EchoStar
remain confidential,' a GM spokesman said.

Murdoch also expressed doubts about the EchoStar/Hughes deal.

'I think there was some misunderstanding that there would be an immediate
premium put on the shares of GMH [Hughes], which hasn't happened at all, and
there was very little reference apparently to the regulatory risks, which all
parties today recognize as being very high,' Murdoch said.

The Hughes merger would have been a good fit for News Corp., but Murdoch
added that DirecTV still has some problems.

News Corp. had planned to make DirecTV part of its Sky Global Networks -- a
combination of its satellite assets including British Sky Broadcasting Group plc
and Star TV.

'As good an opportunity as it represented, Hughes has some very great assets
that are very desirable, but it also has a lot of problems,' Murdoch said. 'We
did our due diligence over many, many months, and we were shocked by some of the
things we discovered to the point where we really hesitated.'

He said later that DirecTV's high subscriber-acquisition costs, high churn
rate and uncompetitive pricing were what concerned him the most.

But News Corp. believed it could rectify those problems with more experienced
management and the international scale of Sky Global. For example, Murdoch said
DirecTV's churn rate was 'well over' double that of BSkyB.

But Murdoch was less blunt about whether News Corp. would re-enter the fray
for Hughes should the EchoStar deal not pass regulatory muster.

'We're not obsessing about it,' Murdoch said. 'We're going to pick ourselves
up and get back with life.'

He also was vague about whether News Corp. would lead a fight to push
regulators to block the deal or seek provisions in any regulatory consent

'We haven't made up our mind at all,' Murdoch said. 'There will certainly be
a lot of people in rural areas who will have a monopoly service whatever a
consent decree said. There will be potential competitors probably who would say,
`How can you allow all of the satellite spectrum to be in the hands of one man,
one company?' I imagine that it's going to be a very long rough ride.'

Murdoch also predicted that Hollywood studios would be concerned with the
merger, especially since Ergen said he would look to get more favorable pricing
from programmers and suppliers.

'It wouldn't surprise me to see lawsuits coming from this, not necessarily
from us,' Murdoch said. 'There will be a lot of action developed over the next
few months. I wouldn't want to give odds on it one way or

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