News Corp.'s $6.6 bil DirecTV buy caps 3-year pursuit
This article was updated on at 9:38 p.m.
NEW YORK — News Corp. won DirecTV Wednesday — a seminal deal for the media conglom and a testament to the perseverance of chairman-CEO Rupert Murdoch, who’s been negotiating that merger for more than three years and seeking entry into the U.S. satellite market for many more.
The agreement, valued at about $6.6 billion, calls for News Corp. to buy GM’s 20% stake in DirecTV parent Hughes Electronics for $3.8 billion in cash and stock and acquire another 14% stake from Hughes shareholders — for a total 34% controlling interest. Hughes will remain a free-standing, publicly traded company. News Corp. will transfer Hughes to subsid Fox Entertainment.
Murdoch hopes to skirt the regulatory hurdles that crushed a previous merger pact between DirecTV and EchoStar and moved quickly to preempt protests from cablers and rival content providers. He swore to keep Fox’s national and regional programming available to all distributors on a non-exclusive basis — meaning he won’t make DirecTV a sole outlet for channels like Fox Sports or FX.
And he promised DirecTV won’t discriminate against outside content. He didn’t outline specific provisions. But “I can assure you that if we don’t follow through with this pledge there’d be such a scream from Hollywood,” he said during a conference call with reporters.
He didn’t discount the possibility of launching new channels on DirecTV, a powerful platform with more than 11 million subscribers. “New channels are an alternatiive. It’s taken us six or seven years to get 90% distribution of Fox News channel. I think with this sort of exposure, that sort of thing will happen a lot faster,” Murdoch said. “If we developed very compelling content and it was launched on DirecTV then cable companies would want to buy it on the same terms very quickly, and it would be available to them.”
Still, Murdoch’s competitors are bound to fret, and lobby. While not likely to derail the deal, they could get the FCC and Dept. of Justice to impose conditions. The merger gives News Corp. a package unrivaled by any of its competitors — a giant broadcast TV business alongside a massive pay TV service. Current regs forbid owners of TV stations to own cable systems, and vice versa, but there is no similar restriction on holding stations and satellites. Wall Streeters and industry players agree that the combination, paired with Fox’s content and News Corp.’s international satellite assets, is a potent one.
Better customer service, new features and the wide breadth of programming a deep-pocketed News Corp. can provide are enough to make cable operators lose some sleep as they try to protect their markets from poaching by DBS
Asked if he thinks this merger gave him a leg up on the competition, Murdoch said, “I don’t see it,” insisting there’s no crossover between broadcast and satellite. “One is something we create, drive and promote and are entirely responsible for. Here we’re a carrier for the whole industry.”
The fight for vertical integration represented by this deal “has been fought and won by AOL Time Warner and plenty of other companies in this country. So that bridge has been crossed,” he added. He said there would be regulatory issues in Latin America, where DirecTV and News Corp. both own satellite assets.
Attempting to allay fears that News Corp. would try to capture the entire U.S. satellite market, Murdoch said he doubts EchoStar chairman Charlie Ergen will try to sell out now that he’s beat. “I know Charlie well enough to know that he would be lost without EchoStar. He loves that business and he runs it very well, and I expect him to be a strong competitor.”
In the past, he’s had harsher words for Ergen, who snatched DirecTV in October of 2001 at the 11th hour after News Corp. and GM/Hughes had a deal in hand. That pact crumbed last fall when it failed to get approval by the FCC and DOJ.
The boards of GM, Hughes and News Corp. voted in favor of the deal at meetings Wednesday. Regulators and shareholders still need to approve it. The three companies will hold conference calls with investors today. One disgruntled Hughes shareholder who crashed the press call clearly felt Hughes, a tracking stock of GM, got the short end of the stick in the deal. While GM receives mostly cash for its Hughes stake, GMH holders will get mostly stock. Hughes will also pay GM $275 million for the priviledge of shifting from a tracking stock, which is a more of a financial instrument, to an asset-backed stock.
Hughes shares price has declined significantly in the past 18 months. The current deal values it at $14 a share. But GM chairman CEO Rick Wagoner defended the automaker’s decision to wait. “We took the other (EchoStar) offer because the board decided it offered better value. This is a simpler transaction that the initial transaction we looked at, (and) the economic value is the same for GM and Hughes.” News Corp’s original proposal would have created a worldwide satellite company called Sky Global Network.
Murdoch said that concept won’t be revived. But DirecTV will certainly benefit from the expertise of a giant satellite biz and economies of scale in infrastructure like set top boxes and electronic programming guides. News Corp. owns BskyB in the U.K. and Sky TV in Asia. Murdoch in the final stages of buying pay-TV service Telepiu in Italy.
Murdoch will be Hughes chairman and News Corp.’s former chief operating officer Chase Carey will be CEO. Hughes senior exec VP Eddy Hartenstein will be vice-chairman reporting to Carey. All three will join Hughes’ 11-member board, which includes News Corp.’s chief operating officer and Fox CEO Peter Chernin, News Corp’s chief financial officer David Devoe and six independent directors.
Five have been named so far: Neal Austrian, former chief operating officer of the National Football League; James Cornelius, chairman of Guidant Corp.; Charles Lee, chairman of Verizon Communications; Peter Lund, former CEO of CBS; and John Thornton, president of Goldman Sachs.
Hughes CEO Jack Shaw plans to retire.