NEW YORK — Speculation mounted on Wall Street Thursday that News Corp.’s merger talks with DirecTV are gravely — perhaps terminally — stalled. Some blamed General Motors for mishandling the process, treating the disposition like an auction when, in fact, there may have been only one serious bidder.
“GM botched it. GM and (investment bank) Goldman Sachs conducted it like an auction, which is OK if there are enough people interested in buying the company,” said one Wall Streeter. “But they didn’t even engage Charlie Ergen — they didn’t even use him as leverage,” he added. Ergen is chairman of DirecTV rival Echostar. GM rebuffed his overture early on due to regulatory concerns.
The worries were well founded, but another ardent suitor “could have gotten Murdoch’s competitive juices flowing,” one banker noted. Murdoch truly wants the asset. Struggling GM needs a deal, and the market expects one. Yet both parties may feel they’ve got the upper hand, which slows things down.
News Corp. insiders insisted discussions are tedious, but still ongoing. They’re hopeful a deal can be reached eventually because, they say — and many on Wall Street agree — DirecTV parent General Motors hasn’t any other choice.
“It’s News Corp. or the status quo,” said one insider.
GM and DirecTV parent Hughes Electronics say they’re considering a range of options — including maintaining the status quo — and that they’re negotiating with numerous parties. Some News Corp. insiders and many Wall Streeters say that’s flat out not true. “Now all they can say is that if Murdoch insists on a tough deal, they won’t do any deal. And that’s not what GM shareholders want,” said one fund manager.
At an entertainment conference sponsored by Variety this week, Murdoch said talks were progressing slowly. Asked if DirecTV was the final piece of his vision for a global satellite network, he responded, “Hell no. There are 6 billion people in the world. There are 250 million here. Don’t let’s get too excited about it.”
The tone has certainly changed. In early February, the broad outline of a $70 billion deal emerged to combine News Corp.’s Sky Global Network with publicly traded Hughes, and insiders anticipated an agreement within two to six weeks. The idea was for News Corp. to first own 35% of the new company, then boost its stake.
“I think that deal’s dead. GM shareholders thought they were getting ripped off,” said one fund manager.
Tangles over trading terms
GM has said that any arrangement must be tax free to its shareholders. GM owns 100% of Hughes and just over 30% of GM’s Hughes Electronics’ tracking stock. Taxes have been a major issue, as well as the currency News Corp. uses to pay for the transaction. “Whose stock to take, the resale rights of the stock, the voting rights of the stock” are all issues, one Wall Streeter said.
Some on Wall Street predicted that if talks don’t conclude sometime soon, News Corp. may well follow through with its original plan to launch an initial public offering of Sky Global Network — without DirecTV.
After all, joked Murdoch, who turns 70 later this month, his productive years are limited. “Hopefully, I won’t spend the whole time talking to General Motors.”