Baby Bell bids for DirecTV

Feb 10, 2003  •  Post A Comment

SBC Communications, facing an ever more competitive phone market, has joined the bidding for DirecTV, throwing yet another wrench into plans by News Corp.’s Rupert Murdoch to add the No. 2 satellite TV provider to his global network of satellite services.
SBC’s bid is said to be worth more than $10 billion, according to The New York Times, which broke the story of the Baby Bell’s interest in Direct TV on its Web site Friday.
GM, which owns 80 percent of Hughes Electronics, owner of DirecTV, had been seeking additional bidders since a proposed $18 billion merger with arch competitor EchoStar Communications (DISH Network) was scraped in December after it failed to win regulatory approval. EchoStar was forced to pay a $600 million penalty to Hughes when it was unable to complete the merger. The attempted deal with EchoStar came about after a long negotiation with News Corp. failed to produce an agreement.
Hughes Electronics spokesman Richard Dore confirmed the negotiations with SBC but would not comment on the specifics of the deal. “Obviously, there is a lot of interest in Hughes in the marketplace, and we are currently looking at what strategic direction to go forward with,” Mr. Dore said.
Hughes is expected to open up confidential financial records relating to DirecTV to the bidders as soon as this week. Hughes shares closed at $9.75 on Friday, down 15 cents, but then rose to almost $11 per share in after-hours trading once the news got out that SBC was now a bidder.
SBC, the second-largest phone company in the United States after Verizon, could bid for DirecTV alone, or could end up in a larger transaction that includes all of Hughes Electronics. News Corp. is said to be interested only in DirecTV, which has about 11 million subscribers. Mr. Murdoch has long sought a U.S. service as the final piece in a worldwide network of satellite-delivered programming channels that includes divisions in Europe, Asia, Australia and South America.
While no one at News Corp. would comment, sources placed the value of its bid for DirecTV at about $7.5 billion. In recent months Mr. Murdoch has confirmed his interest in acquiring DirecTV or its competitor, EchoStar, but he has also said that for once price will be a factor. Mr. Murdoch has discussed bringing in partners on the acquisition, including John Malone’s Liberty Media and Microsoft. Mr. Malone has indicated that if he doesn’t do a deal with Mr. Murdoch, he would also consider becoming the leading bidder.
Other potential bidders are said to include General Electric and Cablevision Systems, according to The Times.
SBC and several other Baby Bells already are in partnership with DirecTV to offer packages of programming along with telephone and data services. After the Texas-based SBC, formerly known as Southwestern Bell, acquired the parent company of Pacific Bell, and Midwestern phone giant Ameritech, sales slowed down due to pressure on pricing and increased competition from alternative phone service providers and cable TV companies that bundle phone and programming services.
This would not be the first time a phone company has jumped into the distribution of programming. However, most of the past attempts have not been very successful. Most recently AT&T acquired cable systems but last year sold them to Comcast, abandoning its efforts to be a one-stop provider of all audio and video services for home and business. SBC may also be slowed in its pursuit by the likelihood it would have to take on a large additional debt.