DirecTV battle widens

Ergen, Murdoch renew satcasting rivalry

NEW YORK — The battle for satcaster DirecTV could prove mighty dramatic as Charlie Ergen’s EchoStar faces off against Rupert Murdoch.

EchoStar entered the fray Thursday, announcing publicly that it had been notified by DirecTV parent GM that the automaker “was willing to establish a dialogue between EchoStar’s and GM’s respective legal and financial advisers so as to better understand a possible transaction.”

The automaker had rebuffed Ergen’s first overtures last year and has been negotiating for months with Murdoch. A GM spokeswoman insisted that the News Corp. discussions are a top priority.

“That’s where our attention and focus is. However, we do have an obligation to our shareholders to consider any viable alternatives,” she said.

Rocky past

Murdoch and Ergen, DirecTV’s smaller, and only, rival, had a brief and rocky partnership in 1997 when they tried to get a new satellite venture off the ground. Their so-called Death Star never took off as the two strong-willed execs clashed over issues of control. They sued each other and settled.

Now Ergen, a formidable opponent and colorful character himself, is out to gum up Murdoch’s Dream Beam (as one analyst dubbed it), a worldwide network of satellite systems called Sky Global Network that still lacks a U.S. component.

Ergen and Murdoch briefly discussed another venture some months ago when News Corp.’s talks with DirecTV were foundering. Control was again an issue and News Corp. renewed its assault on DirecTV.

“Rupert has tried to play these two off each other. He said, ‘If I can’t get Hughes, I’ll go to EchoStar.’ Now in this menage a trois, the other two got together,” noted one analyst. He said Murdoch could let EchoStar and DirecTV merge, if they can, then snap up the whole package.

With DirecTV in hand, Murdoch’s new satcaster would be worth an estimated $30 billion-$40 billion. GM’s interest in Hughes Electronics, which controls DirecTV, is worth about $8 billion-$9 billion. News Corp. sweetened its bid several weeks ago and arranged cash infusions from Microsoft and Liberty Media.

Talks ‘progressing nicely’

“We remain in negotiations with GM and Hughes and those talks are progressing nicely,” a News Corp. spokesman said.

Ergen is now busily raising funds of his own with a $1 billion bond offering scheduled to price on Thursday.

An EchoStar spokeswoman declined to comment beyond the filing. The Denver-based group is likely to move forward quickly with an offer.

Last year, GM told EchoStar it would not negotiate, concerned that regulators would dismiss out of hand a merger between the nation’s only two satcasters. Consumers in rural areas where cable doesn’t reach would have only one choice of pay TV service. “The only lawyers who think (regulations) are not a problem are Ergen’s,” said a person close to News Corp.

But EchoStar may well believe that the increasingly conservative, hands-off and pro-business signals from Washington and its regulators, led by FCC chairman Michael Powell, gives it a fighting chance of doing a deal. (That “anything goes” atmosphere may be tempered as Democrats recapture the Senate.)

Competitive quandary

Several Wall Streeters also pointed out that the two services combined might dominate satellite but still control only about 15 million TV households — fewer than the biggest cable operator. A sole satellite provider would be a formidable competitor to cable, something regulators are also likely to consider.

And earlier this month, Sen. John McCain (R-Ariz.) expressed jitters at the concentration of power if giant conglom News Corp. bought DirecTV. A number of industry players speculated that he was influenced by Ergen, who grew close to McCain during the presidential campaign. McCain later softened his stance.

Shares of Hughes, a tracking stock of GM, rose 2.3% to $23.30. Shares of News Corp. and EchoStar both fell as investors don’t relish the idea of a bidding war unless their company is the target.

News eased 1.9% to $36.53. EchoStar was off 2.1% to $33.30.