ASkyB-Primestar merger said taking shape
NEW YORK — News Corp.’s prospects for rescuing its troubled satellite TV efforts by merging its ASkyB venture into the Primestar Partners sat TV joint venture have brightened in recent days and a deal could be near completion, Wall Streeters say.
Primestar is a venture owned by several major cablers, led by Tele-Communications Inc. and Time Warner Inc. TCI president Leo Hindery has told Wall Street analysts and money managers in recent days about his optimism for a deal and predicted it could be announced this week, sources say.
A TCI spokeswoman confirmed talks “at the highest levels” of the companies were “ongoing,” but she declined to comment further.
There are still major obstacles standing in the way of an agreement, which would replace News Corp.’s now-abandoned joint venture with EchoStar Communications Corp. Time Warner, which owns a major stake in Primestar, is yet to agree to a deal, although people close to the entertainment giant said Wednesday a resolution was now more likely, although it may not be this week.
Rather than simply rejecting the idea of a deal with News Corp., TW execs are debating the structure of a deal, several people with knowledge of the discussions said. Time Warner will do a deal if it is in the company’s best interests, people close to the company said, but no such deal has yet been presented. Time Warner declined comment.
Time Warner’s ability to block a deal long-term is also in doubt, as the Primestar partnership is being restructured into a public company and in that new structure the partners may lose veto power over deals like this.
But sources say an even bigger hurdle to a deal is News Corp. chairman Rupert Murdoch’s desire to simultaneously negotiate carriage for his Fox News Channel and other cable networks on the cable systems of the Primestar partners, which include Cox Communications and Comcast Corp. in addition to TCI and Time Warner.
One person close to the talks said Time Warner would be willing to let News Corp.’s ASkyB sat TV venture merge into Primestar, but it won’t agree to carry the cable networks. Carriage of the Fox News Channel on TW’s Gotham system was the origin of a public brawl between the two companies over the past year.
The big question is how far Murdoch is willing to go in pushing for full carriage. “It may be that if he could get half a loaf, he settles,” said one Wall Streeter.
Murdoch is coming under intense pressure from Wall Street backers such as Capital Research senior VP Gordon Crawford to give in. Capital is a major institutional shareholder in News Corp. and in the other companies involved, and Crawford has been actively trying to promote a News-Primestar deal (Daily Variety, May 18).
News Corp.’s stock price is trading near its 52-week low, closing Wednesday unchanged at $18. If Murdoch lets the Primestar deal collapse, the stock price would fall sharply lower, some Wall Streeters believe. A News Corp. spokesman declined comment.
News Corp. is said to have made progress finalizing the structure of an agreement with TCI, whose chairman John Malone has been a proponent of a News-Primestar linkup for a long time. If a deal is struck, News Corp. would likely transfer the high-powered satellite license it and partner MCI Communications bought, in addition to satellites now being built, into Primestar in exchange for equity in the partnership.
Alternatively, News Corp. could sell its satellite interests into TCI Satellite Entertainment Inc., TCI’s satellite arm, sources say, as this is the company expected to hold Primestar’s assets after the partnership’s transformation into a public company. TCI Satellite stock rose 37¢ to $9.62 Wednesday.
The linkup with News Corp. would allow Primestar, which now operates on medium-powered satellite capacity, to move to the high-powered capacity, which allows customers to have smaller dishes. Primestar is not expected to significantly change its business plan, which has been less competitive with cable systems than other sat TV operators like DirecTV.
This is the big advantage for Primestar in doing a deal with News Corp., which had threatened to go after cable customers if its deal with EchoStar was consummated.
For News Corp., the deal would limit the company’s investment in sat TV services, which would otherwise run into the billions of dollars.