GM Delays Vote in Murdoch Talks on DirecTV Buyout

Takeover talks between News Corp. and DirecTV owner General Motors Corp. are continuing, according to several executives close to the companies. However, a buyout proposal from the media conglomerate will not be put to a vote at the auto maker’s regularly scheduled board meeting Tuesday.

Top GM management who met with News Corp. Chairman Rupert Murdoch in Detroit last week are expected to recommend that the company pursue the deal he proposed, under which News Corp.’s Sky Global Networks would acquire GM’s controlling stake in DirecTV parent, Hughes Electronics Corp. Though sticking points remain, a deal could come together in the next month, said one highly placed source.

If the outstanding issues can be resolved, News Corp. would take control of the combined company with the single largest stake of 30%. GM’s 30% controlling stake in Hughes is valued at $8.5 billion. Hughes is publicly traded separately from GM and has a market value of $28 billion.

Murdoch has been pursuing DirecTV, the nation’s leading satellite television company, for more than a year to plug a gaping hole in the U.S. in Sky’s worldwide satellite network.

Talks between the companies fell apart in February when GM backed away from a $70-billion merger pact after terms of the deal were leaked to the press. GM got nervous when Hughes shareholders protested over the low premium they were to get and bailed out of the stock. Hughes shares have since lost $10 billion in value, due in part to the market’s general decline.

Both GM and News Corp. are optimistic about closing a deal, sources said, following a meeting last Monday at GM’s Detroit headquarters between its Vice Chairman Harry J. Pearce, Chief Executive G. Richard Wagoner and a News Corp. contingent that included Murdoch and Steven Ballmer, CEO of Microsoft Corp., which has agreed to put $3 billion of cash into the deal.

At the meeting, Murdoch pitched an offer similar to the one he made in February and brought studies that undercut a competing proposal presented to the GM management last week by Hughes Chairman Michael T. Smith, sources said. Smith is proposing to borrow the funds to buy out GM and spin off Hughes into an independent company. It now trades as a “tracking” stock, which allows shareholders to participate in the company’s financial performance even though they do not own the underlying assets.

Murdoch’s proposal also calls for spinning off Hughes, although his plan involves less leverage.

Sources said the two persisting hurdles for Murdoch are price and whether the Hughes board will support the deal. GM is looking for News Corp. to sweeten the February proposal, which gave Murdoch 35% of the $70-billion company, with existing Hughes shareholders holding the remaining 65%.

Analysts said Hughes shareholders disliked the deal because they were handing over control of an asset with an established market value, DirecTV, for a jumble of Sky properties, some of which Murdoch doesn’t control and others that are of uncertain value.

To placate them, GM is pushing to increase Hughes shareholders’ stake in the new company to 70%. Wall Street sources said one way to do that is for News Corp. to take StarTV and Stream, two unprofitable and difficult-to-value assets, out of Sky.

StarTV is News Corp.’s struggling satellite service in Asia, while Stream is an upstart satellite venture in Italy. They were valued in the original deal at about $5 billion.

Another unresolved question is what happens to Hughes’ PanAmSat, which operates satellite transponders. Murdoch has no interest in owning the publicly traded company, which is 80% owned by Hughes. Under the previous deal, Hughes had agreed to sell the company, which is now valued at $5.4 billion, to satisfy GM’s demand that at least $6 billion of its proceeds be in cash.

But analysts say there are few buyers. Sources say Hughes was negotiating with Societe Europeenne des Satellites, but dragged its feet, prompting the European company to strike a deal to buy General Electric’s satellite operation.

Any deal also must pass muster with the Hughes board, headed by Smith, who was a vocal opponent of the previous News Corp. proposal because of the price.