Analysts dismayed corp. burdened with billions of debt
On Wednesday night, Rupert Murdoch described News Corp.’s acquisition of Hughes Electronics a “win, win, win.”
The next day it was “lose, lose, lose,” in the markets at least, as shares of News Corp., subsid Fox Entertainment and Hughes all bit the dust as analysts and investors picked apart the $6.6 billion deal. Fox, where Hughes will be housed under terms of the transaction, took the brunt of the selling after several Wall Streeters, in fact, slapped “sell” ratings on the stock.
Fox shares plunged 17.06% to close at $22.60 — its lowest level in months. News Corp. shares dipped 6.50% to $25.25 and Hughes stock ended off 9.76% at $10.36.
Tauzin in the picture
Meanwhile, politicos snapped into action as Commerce Committee chairman W.J. “Billy” Tauzin (R-La.) sought a meeting with Murdoch on Capitol Hill today to discuss the merger.
“Given the size of the proposed deal as well as its impact on the marketplace, Chairman Tauzin wants to talk to both Rupert Murdoch and (GM CEO) Rick Wagoner before passing judgment,” Tauzin spokesman Ken Johnson said. “Clearly, the sale has the potential to create some seismic shifts” in the industry, he added.
On Wall Street, analysts were dismayed that Fox will be saddled with $4.5 billion in debt from the deal, and they are worried generally about the costs and risks Fox and News Corp. face in building DirecTV into a strong competitor to cable. Merrill Lynch’s Jessica Reif Cohen, who downgraded Fox to “sell” from “buy,” thinks the company could be stuck in “deal limbo” for the rest of the year.
She said she’s “less convinced that Fox is managed as an operating entity rather than a financing vehicle for News Corp.”
Many Wall Streeters expected Hughes to be placed under parent News Corp. instead of being sold down the corporate ladder to Fox. Originally, News Corp. intended to pool the company with its other worldwide satellite assets in a new entity called Sky Global Networks, but it dropped that idea some time ago.
Murdoch defended the move, saying it made structural sense since Fox was broken out specifically to house News Corp. U.S. entertainment and distribution outlets.
And despite her doubts, Reif Cohen acknowledges that “the deal is a strategic positive for Fox on a number of levels.”
GM stock rises
Shares of Hughes parent General Motors, the seller, inched up 0.06% to $34.50 despite criticism that it sacrificed billions of dollars by picking the wrong partner 18 months ago.
GM/Hughes ditched News Corp. in October 2001 with a deal in hand and agreed to merge with smaller satcaster EchoStar instead. But that pact was blocked by federal regulators last fall. Hughes shares have declined in the interim, lowering the pricetag in the second round with News Corp.
GM agreed Wednesday to sell its 20% interest in Hughes to News Corp. for $3.1 billion in cash and about $700 million worth of News Corp. stock. News Corp. will buy another 17% of Hughes directly from GMH’s other, smaller shareholders. But that group will probably receive all stock and no cash, prompting protests of unfair treatment.
Shareholders of all companies must approve the deal, along with the FCC and Dept. of Justice.
(Susan Crabtree in Washington, D.C. contributed to this report.)