NEW YORK — Rupert Murdoch’s new Sky Global Networks announced its first strategic investor Wednesday as John Malone’s Liberty Media confirmed plans to take a 6% stake in the satellite venture along with a massive chunk of News Corp. stock.
News Corp. chair-CEO Murdoch said it was too early to comment on whether News Corp. or a beefed-up Sky Global will make a run for DirecTV, but he’d certainly be interested in buying the U.S. satellite group if parent “General Motors decides to do anything.” GM is actively shopping its Hughes Electronics subsid, which owns DirecTV.
Walt Disney, Vivendi, Sony and Viacom are eyeing the asset, but News Corp. or giant NBC parent General Electric are likelier suitors, some Wall Streeters said. News Corp. wants it the most and GE has the deepest pockets.
News Corp.’s latest deal involves a shuffle of shares of Gemstar-TV Guide Intl., with it buying out Liberty’s 23% stake in the tech company, best known for its electronic TV program guides. News Corp. will wind up with 43% of Gemstar and a path to control, and will fold it into Sky Global Networks.
“This is a very important and exciting day for each of our companies,” said Murdoch, calling Gemstar “one of the world’s most exciting new-media companies” and Malone “a trusted friend and advisor” who’s worked with News Corp. in the past to grow assets like Fox/Liberty Sports.
Malone sold Murdoch Liberty’s stake in the regional sports net in exchange for News Corp. stock 18 months ago. Now he’s boosting that 8% stake to 18%.
During a conference call, Murdoch thanked Malone, who is highly regarded as an investor, for the vote of confidence in his company. News Corp. shareholders surely thank him, too, as the company’s stock rose 4.76% to $56.37 on Wednesday.
The deal calls for Liberty to transfer 80% of its Gemstar stake to News Corp. in exchange for about 486 million nonvoting shares of News Corp. The rest of Liberty’s Gemstar stake will be exchanged for shares in Sky Global, which is planning an initial public offering this fall. Liberty will also contribute its interests in the Sky Latin America satellite platforms (Sky Brazil, Sky Mexico and Sky Multi-Country Partners) to Sky Global in exchange for stock.
All that will give Liberty a 4.76% stake in Sky Global. An additional $500 million cash investment will take the stake to 5.9% and helps to put a value on the new company, which Murdoch said is worth about $40 billion.
$6 billion valuation
Gemstar has a market capitalization of close to $30 billion. That makes Liberty’s stake in the Pasadena, Calif.-based group worth more than $6 billion. Gemstar shares also jumped, rising $4.38 to close at $72.94.
Malone noted that the transactions constitute “a great change in our portfolio” as Liberty’s investments are more satellite-centric than ever before. These satellite assets will be held in a new company called Liberty Satellite, a venture between Liberty Media and its publicly traded unit Liberty Media & Technologies.
Liberty is owned by AT&T Corp., which is positioned to become the nation’s largest cable operator when it completes a pending merger with MediaOne Group. Malone is AT&T’s single largest shareholder. The trouble is that regulators frown on cross-ownership of cable and satellite assets.
To avoid such hurdles, however, Liberty’s large stake in News Corp. will be nonvoting.
“This is a passive investment position and, at this point, that’s all it is,” said Malone. Asked whether he’ll join the News Corp. board, he responded, “I don’t think that’s been determined at this point; it’s up to News Corp.”
“John is a friend, and is and always has been welcome on our board,” said Murdoch, but it’s necessary to take the regulatory situation into account.
Malone called the deal a kind of triple play, where Liberty garners a bigger stake in News Corp., a direct and indirect investment in Sky Global Networks plus an indirect share of Gemstar, which he called one of the best-run intellectual property companies in the world.
The deal puts Gemstar in position to deploy its program guides, which are already dominant in the U.S., on set-top boxes around the world through Sky Global, whose assets include U.K. satcaster BSkyB and Sky Asia. The guide can also serve as a portal to video-on-demand, telephony, games and other interactive services that are expected to generate hefty revenue in the years ahead.
Gemstar also holds many guide-related patents that it can license for lucrative fees in foreign markets.
“The world is just now beginning to appreciate the application of Gemstar’s patents and its programming guides,” Murdoch said.
He and other execs also extolled the company’s burgeoning “e-book” technology that fits nicely with News Corp.’s role as a publisher of newspapers around the world and of books through U.S.-based HarperCollins.
“We’re extremely excited by anything that’s likely to increase the readership” and boost the economics of the publishing biz, said News Corp. chief operating officer Peter Chernin.
E-books, which look like hand-held computers, are about the size of real books and let consumers order, read and store a whole range of publications.
The rolling-up of Gemstar is an early success for Sky Global Networks as Murdoch attempts to do the same with assets around the world as he fleshes out his new company. He’d like France’s Vivendi, for one, to contribute its sizable stake in BSkyB to the cause, alongside News Corp.’s controlling interest. There’s been no deal as Vivendi apparently wants more than a passive equity stake in Sky Global.
Said Murdoch, “We’re ready to sit with them and negotiate any time. I think their position has been one of support … but they need to clear up all their problems with their prospective takeover of Seagram, which, hopefully, is only a few weeks away.”