News Corp. appears to be gearing up for a run at DirecTV Inc., as its Fox Entertainment Group unit raised $1.3 billion in a public stock offering last Wednesday.
Fox Entertainment — which was 85.3 percent owned by News Corp. prior to the sale — priced 50 million shares of its Class A common stock on Wednesday at $24.50 per share. In a prepared statement, Fox said the company would get about $1.2 billion of the proceeds of the sale, which will be used to pay back some of the $2.8 billion in debt it owes its parent company.
Goldman Sachs & Co. served as the sole book-running manager of the offering, with Merrill Lynch acting as co-manager.
As a result of the sale, News Corp.'s stake in Fox will be reduced to 80.6 percent. That figure is within the 80 percent threshold News must maintain to continue to consolidate Fox's financial results on its balance sheet.
News Corp. has been expected to make another run at DirecTV, since federal regulators have rejected the merger of the direct-broadcast satellite company's parent — Hughes Electronics Corp. — and rival provider EchoStar Communications Corp.
News is expected to make a bid for General Motors Corp.'s 32 percent interest in Hughes, rather than try to buy the entire company. Speaking on News Corp.'s third-quarter conference call last week, chairman Rupert Murdoch said if his company were to make a bid for DirecTV, it would likely be through the GM stake.
"I don't know if it is going to be offered to us, or when," Murdoch said on the conference call. "Certainly if it was, it would take the better part of a year from now before any deal could be consummated."
Later, on a call with reporters, Murdoch said he has not had any discussions with officials from GM or Hughes, and likely wouldn't until well after Jan. 21 — the drop-dead date for the Hughes-EchoStar merger.
The Federal Communications Commission and the U.S. Justice Department blocked EchoStar's $25 billion bid for Hughes last month, citing anti-competitive concerns. EchoStar is expected to appeal the decision in court, but analysts have said its chances for success are slim.
A News Corp. bid for the GM stake could be considerably cheaper — about $4 billion — and the Fox stock sale would go a long way toward raising the money needed to reach that goal. Though several other analysts anticipate that News Corp. would seek a partner in such a deal — most likely Liberty Media Corp. — Salomon Smith Barney Inc. analyst Jill Krutick said in a research report that the Fox stock deal would allow News to go after the GM stake on its own.
"The [Fox stock] sale was well-anticipated, and usage of the more highly valued Fox shares for the financing is vastly preferable to using News Corp. paper," Krutick wrote in her report. "With this deal, News Corp. could finance a purchase of GM's 32 percent interest in Hughes, currently valued at about $4 billion, without relying on either debt financing or external partners. Developments on this front continue to favor News Corp."