Liberty moves to up News Corp. stake

Malone could get 20% for Gemstar-TV Guide stock

Rupert Murdoch may have a helping hand as he moves to transform Sky Global Networks into a truly international powerhouse ahead of its initial public offering. The News Corp. topper is hashing out a deal with Liberty Media’s John Malone that could provide satellite giant Sky with crucial assets and tighten the bond between two powerful media moguls.

News Corp. wants to buy Liberty Media’s 21% stake in Gemstar-TV Guide Intl., add that to its identical chunk of the company and roll everything into Sky Global.

Transaction could leave Liberty with a whopping 20% of News Corp. stock — likely non-voting shares — and a board seat. It could also pave the way for an even bolder move, News Corp.’s purchase of U.S. satellite service DirecTV, although a deal on that front may not be imminent.

Apparent heir?

The Murdoch family owns 30% of News Corp. and hangs on tight to the voting stock. Company insiders vigorously dismissed speculation that Murdoch, who was recently treated for prostate cancer, has tapped Malone as a potential vice chairman or mentor to his sons and heirs Lachlan and James. But, as one Wall Streeter said, “Nobody in the company really knows Murdoch’s mind.”

Malone garnered 8% of News Corp. in the spring of 1999 in two transactions that included selling off Liberty’s half of another joint venture, Fox/Liberty Sports, in exchange for News Corp. stock. That made him News Corp.’s second largest shareholder. Since then there’s been speculation that the partners’ Gemstar-TV Guide stakes would be rolled together in a similar manner. Now is a good time for Murdoch, who wants to get as much of Gemstar plunked into Sky Global as possible before it goes public in November.

On the Liberty side, “Malone may feel that News Corp. is undervalued, and this would be an inexpensive way of increasing his investment in the company,” said media analyst Arthur Rockwell. Liberty is an investment company with a host of content and tech assets — including its own satellite group, Liberty Satellite & Technology.

“Rupert and John Malone have always had a keen appreciation for satellite,” added one fund manager, even though the Liberty topper made his fortune in cable. Malone sold his cable company, Tele-Communications Inc., to AT&T a year and a half ago and is now the giant telco’s biggest single shareholder .

Malone’s interest in News Corp. tends to spark a virtuous cycle in the stock, since investors often follow the picks of the well-respected financier.

Gemstar’s state-of-the-art electronic program guides and proprietary digital technology make it a highly valuable addition to the Sky Global stable. It’s also giant in its own right, with a market capitalization north of $30 billion.

As for General Motors-owned DirecTV, News Corp. badly wants it to round out Sky Global’s worldwide presence; Murdoch’s new satellite play, which counts Asia’s Star TV and U.K. satcaster BSkyB among its assets, lacks a satellite service Stateside. DirecTV is the biggest player in the U.S. with 10 million subscribers.

Satcaster suitors

But competition may be stiff. GM has approached a host of possible suitors, with News Corp. just one of the pack.

Walt Disney is a logical buyer as well and has been “kicking the tires” at DirecTV, a Mouse House insider said. But many doubt that conservative Disney topper Michael Eisner would greenlight such a huge purchase. “I don’t think they feel they need it,” said one investor.

DirecTV is valued at about $40 billion. It’s owned by Hughes Electronics, a tracking stock of General Motors.

Viacom has been approached as well — but isn’t interested, according to people close to the company — as have Sony, Vivendi, Microsoft, NBC parent General Electric and others. The head of DirecTV’s smaller U.S. rival EchoStar said last week that his company is in the mix as well.

News Corp., however, is known for paying whatever it takes if Murdoch considers a purchase crucial to his strategy. Company surprised Wall Streeters and industry players in August by agreeing to pay nearly $3 billion for Chris-Craft, an owner of TV stations. Sky Global appears to be Murdoch’s consuming interest just now as he gathers all of News Corp.’s worldwide satellite and digital assets under one roof and prepares to grow them through acquisitions and alliances.

News Corp. plans to offer 10%-15% of Sky Global to the public in late October or earlier November. Analysts have valued the entire company at $25 billion-$30 billion. Gemstar would be a big plus, DirecTV a bigger one.

GM has given Hughes chairman Michael Smith a high level of control in the strategic-review process and recently hired investment bank Goldman Sachs to explore strategic options for Hughes, including a possible sale.

“Hughes is definitely on the block and trying to walk up the price,” said the portfolio manager. The company is one of the biggest advertisers for the fall TV season and has been pushing hard for new subscribers, he added, since the more subs it has the higher the price. Hughes execs are meeting with investors in Los Angeles today as part of Merrill Lynch’s annual media conference. Merrill is also planning an outing for the group to meet with Disney execs.

GM iffy on News Corp.

Rumor has it that the GM board, which would sell Hughes/DirecTV for a combination of stock and cash, doesn’t particularly want News Corp. shares. Entertainment company stocks aren’t earnings-driven and tend to be volatile. People close to News Corp. note that the stock has doubled in the past year, however.

One option is for News Corp. to offer GM shares of Sky Global Network instead. In a roundabout way, a deal between Malone and Murdoch on Gemstar could help that happen by boosting the value of Sky Global.

Liberty is also cash-rich and could lend a hand on that front since GM apparently wants a big chunk of cash for DirecTV, as much as $9 billion, according to some reports, as part of any purchase package. News Corp. recently sold off a substantial block of stock in EchoStar, and many believe Murdoch cashed out to move his chips to DirecTV. Murdoch is also said to be considering selling off some of his Australian newspaper assets to build up News Corp.’s war chest.

AT&T designs?

The Liberty Media boss is known for his keen grasp of investment strategy, and separate speculation suggests Malone has designs on reconfiguring his relationship with Liberty parent AT&T over dissatisfaction with AT&T’s stock price. Rumors range from Malone’s managing to break free from AT&T to his staging a palace coup and taking over a restructured version of the telecom giant.

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