Views vary on DirecTV deal value

Investors ruminate about potential News Corp. buy

As Rupert Murdoch closes in on DirecTV, the prospect of News Corp. as proud owner of a giant U.S. distribution platform has the conglom’s fans in the investment community salivating.

Critics, however, are just as adamantly scratching their heads. It seems Murdoch won’t easily escape the paradigm of being the empire builder most admired by his peers and by Wall Street — even as the mention of his name sends investors scurrying.

“They’ve got deals and relationships all over the world. Nobody does what they do, no one else is international like them. If this goes through, everyone will be caught flat footed,” says a media banker not involved with the DirecTV deal.

Still, “people just worry about Rupert in general. They never know what he’ going to do, yet he’s Master of the Universe. News Corp. is huge, but no one here has an eye beyond the U.S. border.”

Rivals certainly see benefits overseas. AOL Time Warner, Viacom, Walt Disney and others talk incessantly about international expansion. But they were homeboys first. In a kind of collective dyslexia, investors can’t seem to work things the other way around.

“I mention News Corp. to some clients and they say, ‘Don’t talk to me about that. Next stock,’ ” says Merrill Lynch analyst Jessica Reif Cohen, an outspoken proponent. With DirecTV in hand, she thinks “investors are going to be forced to recognize it.”

Getting up to speed on Murdoch’s far flung operations in Australia, the U.K. and Europe, Asia and Latin America can be intimidating and a heck of a lot of work for U.S. investors.

“I’ve got no visibility on satellite in China, or BSkyB. … It’s a terribly complicated company and (DirecTV) doesn’t change that,” says one showbiz analyst who doesn’t follow News Corp.

At issue as well is Murdoch’s reputation as a dealmaking cowboy who always overpays. Reif Cohen and others say that’s just not fair.

In a painstaking analysis of News Corp.’s acquisitions since 1986 (when it bought 20th Century Fox), Morgan Stanley Dean Witter analyst Rich Bilotti concludes that most of News Corp.’s purchases have added value for shareholders in the long term.

Often, deals the market most disliked — buying a studio, starting the Fox network, BSkyB, STAR TV, Fox News — turned out the best. “News Corp. has often been more successful for shareholders when it has pushed the boundaries of risk and swum against the tide of perceived wisdom,” Bilotti says.

Naysayers just aren’t particularly upbeat on the satellite biz. “I don’t think much of DirecTV by itself, so why would I get excited now. It’s a very viable distribution platform trying to get as many subs as they can before cable cleans their clock,” says one analyst.

That raises hackles as others point to News Corp.’s stunning success converting BSkyB subscribers to digital by giving away free set-top boxes. “Now the churn is 13% — DirecTV is over 20%,” points out one media fund manager.

“People do believe in satellite, just not the way it’s currently being run. If Mel Karmazin doesn’t want him to get it and Michael Eisner doesn’t want his to get it (and they don’t) — there’s something there.”

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