News Corp. waits in wings as Ergen's DirecTV bid stalls

Rupert Murdoch’s newfound deal-making patience is starting to pay off. Say hello DirecTV. Say bye-bye EchoStar.

With Washington strongly hinting Tuesday that it will nix EchoStar’s bid to buy up DirecTV, Murdoch’s chances of getting a second whack at DirecTV grew exponentially.

And after a summer of hardball negotiations on price and terms, Murdoch’s News Corp. is finally on the verge of taking control of Vivendi Universal’s ailing Italian pay TV operation Telepiu for a modest amount of cash and mostly debt assumption.

U.S. Dept. of Justice attorneys reviewing the EchoStar/DirecTV appear to have issued a negative recommendation.

Whether that recommendation leaves any room for concessions by EchoStar was unclear. Also, it wasn’t clear whether Justice Dept. antitrust chief Charles James has acted on the recommendation.

“Our investigation continues,” a Justice Dept. spokeswoman said.

Last week, James hinted to Capitol Hill that the $16 billion deal, which would unite the country’s two largest satcasters, poses serious antitrust problems. In rural areas with no access to cable, there would be only one pay TV provider.

Running interference

Since losing his bid to buy DirecTV to EchoStar’s Charlie Ergen, Murdoch has orchestrated a well-run opposition to the EchoStar/DirecTV merger. News Corp. reps have met with Capitol Hill lawmakers, DOJ attorneys and regulators at the Federal Communications Commission, which also must sign off on EchoStar/DirecTV.

Today, Ergen is skedded to meet with FCC chair Michael Powell to discuss the reg agency’s concerns.

EchoStar spokesman Mark Lumpkin said the company remains confident the deal will ultimately be cleared.

But if Washington scuttles Ergen’s bid, this would leave a clear path for the newly demure Murdoch to offer his hand to Hughes. The longer the deliberations go, News Corp. sources said, the lower the likely price tag on a DirecTV acquisition.

Of course, Murdoch would have to win Washington’s blessing as well. And there is sure to be a backlash against Murdoch’s meddling in the EchoStar deal.

Patience pays

But if its negotiations with cash-strapped Viv U are any indication, News Corp.’s persistence and fortitude could pay long-term dividends.

On the eve of a highly anticipated shareholders meeting in Paris on Wednesday, Viv U management were hoping to present some concrete proof of the conglom’s restructuring commitment: Though the pen apparently has not yet graced a final deal document, Viv U has indicated a sale of Telepiu to News Corp. is imminent and that financial terms have been largely agreed upon.

The deal, valued at E900 million to E1 billion, will consist largely of debt assumption and is a lower price than originally discussed by the two parties earlier this year.

News Corp. said it has yet to receive final verification of Telepiu’s subscriber numbers — a key deal point for News Corp. given reports of compromised encryption codes and non-paying subs.

And Murdoch had been scouting for a local partner to share the pay TV risk in a merger (and reduce the shareholding of Stream partner Telecom Italia), but no such financial or strategic partner has been identified.

Though the deal won’t put a lot of cash on the ledger, it significantly lightens the ongoing funding burden on Viv U’s Canal Plus subsid.

News Corp.’s Stream has 800,000 subs, compared to Telepiu’s estimated 1.5 million subs. But both services have been bleeding cash. Viv-U owned Telepiu recorded a E202 million operating loss in 2001, while Stream lost some E400 million.

Merger road clear

Though a final agreement will require approval by the Italian antitrust authorities, the absence of any new pay TV competitors is likely to mute criticism of a merger between the two platforms.

Separately, Viv U also confirmed that it received “several proposals” Monday for its publishing assets, but that a final decision on a buyer is at least several weeks away.

In the run-up to major re-organization and downsizing of the French company, Viv U chairman and CEO Jean-Rene Fourtou on Tuesday appointed Rene Penisson as his advisor on company organization, human resources and labor relations.

The appointment may presage some restructuring and layoffs at the company as it prepares to offload holdings to pay down debt. Penisson, an engineer by training, was previously a member of the executive committee and VP of human resources at Rhone-Poulenc.

Filed Under:

Follow @Variety on Twitter for breaking news, reviews and more