News Corp. placed Hughes Electronics and its corporate parent General Motors on notice last week with a letter requesting that News Corp.’s case for a “compelling” merger of Hughes’ and News Corp.’s satellite interests be presented directly to the Hughes and GM boards of directors.
Sources close to the situation said late Friday that talks among the companies will resume, and that News Corp. will meet with the boards of GM and Hughes perhaps as early as this week. News Corp., GM and Hughes declined comment.
If such a meeting doesn’t happen soon, News Corp. is prepared to walk away from the proposed $70 billion tax-free deal that would merge Hughes’ DirecTV and News Corp.’s extensive global satellite operations in Europe, Asia and Australia, sources say.
“News Corp. is getting fed up with the stalling,” a well-placed source said. “Something has to happen soon.”
Word of the situation last week drove down the price of Hughes tracking stock to a one-year low of $19 a share. Hughes stock has lost half of its value in the past 12 months, making it difficult to command a premium from potential buyers or partners.
In a March 13 letter to the GM and Hughes boards of directors, News Corp. Chairman Rupert Murdoch said the combination would create “the first truly global communications company capable of delivering video, data, interactive and Internet services,” sources said.
The merger would yield “billions of dollars of operating synergies” and would be an unparalleled “growth vehicle,” Mr. Murdoch wrote.
Mr. Murdoch also indicated he will not alter the terms of the proposed deal, which would give News Corp. a 35 percent ownership stake in the new global satellite entity and daily management control.
News Corp., Hughes, DirecTV and other companies involved in the talks declined comment. GM and Hughes have said only that they are examining all of their options.
However, Hughes Chairman Michael Smith faces another deadline this week in his effort to retain control of DirecTV. GM management has given Mr. Smith until this week to produce as potentially lucrative a deal with another interested party that would allow Hughes to retain control of any merged satellite entity. During the past three weeks, talks with News Corp. have been placed on hold.
“This is a power play on the part of Michael Smith, and it’s hurting GM and Hughes shareholders,” one source close to the negotiations said.
The negotiations soured several weeks ago when Mr. Smith contacted some of the companies that previously had expressed an interest in partnering with or buying DirecTV. Companies that have been contacted include Microsoft Corp., SBC Communications and General Electric Co.’s NBC.
“News Corp. is getting fed up with the stalling and manipulation,” said a source close to the situation.
Further complicating things is growing disagreement among the top executives and boards of GM, Hughes and DirecTV about what should be done.
Meanwhile, News Corp. last week intensified its discussions with EchoStar about a possible equity partnership or merger of their satellite interests. EchoStar, which had been shut out by Hughes from exploring a potential alliance between the rivals, declined comment.
News Corp. has proposed increasing its equity stake in EchoStar from a current 7 percent to about 35 percent, but would manage the companies’ combined satellite assets. EchoStar founding Chairman Charlie Ergen would retain majority ownership of EchoStar, which is valued at about $12.6 billion.
EchoStar stock last week climbed above $30 a share on speculation about a deal with News Corp.
Either the DirecTV or the EchoStar combination would give News Corp. and its 20 percent owner, John Malone’s Liberty Media Group, a valuable global satellite platform to develop and launch worldwide services. News Corp. has indefinitely postponed a plan to take its satellite operations public under the name Sky Global until the stock market improves and its negotiations with DirecTV and EchoStar are resolved.
Sky Global investors include Microsoft and Liberty Media. GM and Hughes are under intensified pressure from institutional investors to pursue the deal that promises to create the greatest potential value for shareholders over time. A number of powerful institutional investors have gone public with their appeal for the GM and Hughes boards to approve a merger with News Corp.’s satellite interests.
GM and Hughes say News Corp.’s balance sheet is too debt-ridden and the value of its stock (in the form of American depositary receipts) is too unstable. However, a weak and erratic stock market has leveled all media and communications stocks.