Hughes Looking to Expand Its Services

Hughes Electronics Corp., the arm of General Motors that owns DirecTV, may soon be on the hunt for acquisitions to shore up its void in programming, high-speed Internet access, and other services needed to compete more effectively against the cable industry.

The El Segundo-based satellite TV provider said Tuesday that it plans to split its Class H stock 3 for 1 to make it more affordable for investors. The announcement follows GM stockholder approval Tuesday of a sixfold increase in Hughes shares.

The increase will make it easier for the auto maker to use the stock for acquisitions and alliances to build its crown jewel, DirecTV, the nation’s leading satellite TV provider.

Company officials confirmed their interest in acquisitions, without offering specifics.

“We need to be able to move quickly,” said Harry Pearce, the GM vice chairman, who oversees Hughes operations. “We need the flexibility to do appropriate deals should they come along.”

Wall Street speculation has centered on Pegasus Communications Corp., the largest reseller of DirecTV in the nation’s rural areas. Industry sources say the company also has non-satellite targets in mind. While DirecTV is gaining on cable leaders AT&T; and Time Warner in serving television customers, it lags the industry in providing other services, particularly high-speed Internet access. AT&T; and Time Warner also own impressive programming assets, while DirecTV only recently began taking small stakes in these businesses.

Some industry executives say that DirecTV and NBC would be a dream combination. That would give the satellite provider a broadcast network and cable cash cows such as CNBC and MSNBC, as well as TV stations. It would provide NBC with a direct--and billable--connection into the home.

But neither GM nor NBC’s parent, General Electric, has been willing to relinquish control of their media assets. NBC contributes to GE’s growth, while Hughes helps camouflage GM’s pitiful financial performance.

Wall Street has been pushing for a spin-off to unlock the value within the satellite company. Hughes is about equal to GM in value, but that is not reflected in the car maker’s stock. To placate Wall Street, GM is allowing GM shareholders to exchange their shares for H stock--an offering that was oversubscribed. “It was not a vote of confidence in GM that the offer was oversubscribed by nearly four times,” said Vijay Jayant, a Bear Stearns analyst who follows Hughes. “It showed that Hughes is the jewel in GM’s crown.”

A management shift at GM could bring a change in direction. Executives close to the company say that GM’s outgoing chairman, John F. Smith Jr., has opposed shedding Hughes, but that new chief executive G. Richard Wagoner Jr. might be inclined to trade DirecTV for a stock with growth prospects provided the premium is high enough.

GM could trade DirecTV for a stake in News Corp.’s new global satellite company, tentatively called Platco. News Corp. and Liberty Media Corp. have discussed the possibility of teaming up to buy DirecTV. DirecTV would fill the U.S. void in News Corp.’s worldwide satellite TV operations.

Liberty Media, which owns 10% of News Corp., is deploying its pile of cash by investing in a broad portfolio of media, including cable channels such as Discovery, USA, and QVC, as well as distribution outlets such as broadcast TV, wireless technologies and satellite.

However, one source said Liberty and News Corp. are not at the moment focused on such a deal. Liberty is shackled by its parent AT&T;, a leading cable provider and DirecTV rival, while News Corp. Chairman Rupert Murdoch is undergoing chemotherapy for prostate cancer.

On Wall Street, investors welcomed the planned stock split.

On the New York Stock Exchange, GM shares fell $1.81 to $68.50 and the Class H shares rose $4.38 to $107.