News Corp. Could Win DirecTV

News Corp. may be the biggest beneficiary of a decision Thursday by federal regulators to reject a proposed merger of the nation’s only two satellite providers, Hughes Electronics Corp. and EchoStar Communications Corp.

The media giant controlled by Rupert Murdoch negotiated with Hughes’ parent General Motors Corp. for more than a year before it was trumped last October by a surprise 11th-hour bid for Hughes by its smaller satellite rival, EchoStar.

Now, with that deal rejected by the Federal Communications Commission, Murdoch is expected to launch another bid for Hughes, which owns the leading satellite provider DirecTV. News Corp. may be able to snatch it up at a much cheaper price than a year ago, filling a U.S. gap in the company’s global satellite business.

DirecTV executives, eager to spark a bidding war that would bring a higher price, say the financial improvements at their company over the last year will give them alternatives other than selling out to News Corp. if the deal collapses. But industry executives and analysts say GM is under pressure to act swiftly.

“I expect Hughes to come back on the block by midyear, and for Murdoch to get it in a heart beat,” said Jimmy Schaeffler, an analyst with Carmel Group, which tracks the satellite business. “GM still needs the money and must be much more expedient and efficient this time around.”

They say the automaker still needs the cash from a satellite sale to fund its pension liabilities and may not be able to wait for a stock market rebound to spin off its controlling 30% stake in Hughes to public shareholders.

GM and Hughes shareholders also are losing patience as the satellite subsidiary’s value has dropped sharply as the merger process has dragged on. Since GM first hired investment bankers in September 2000 to explore a sale of Hughes, the value of the satellite subsidiary has declined to about $10 billion, from $44 billion.

Investors drove down the price of Hughes again Thursday because of fading prospects of receiving the 20% premium offered by the proposed EchoStar bid. Hughes shares closed at $8.15 on the New York Stock Exchange, down 25 cents. Last October, when the deal with EchoStar was struck, Hughes shares were trading at about $15.

Any prospects for a bidding war are slim, analysts say.

Few media companies other than News Corp. have the balance sheets to pull off such a large transaction. General Electric Corp., the owner of NBC, is considered to be one potential candidate, but has been unwilling to make large media acquisitions that would dilute shareholder value.

Although some within Hughes have contemplated the possibility of a management buyout, financial experts say raising money for such a deal is unlikely in today’s conservative lending environment.

GM is unlikely to initiate discussions with any new buyers before the merger agreement with EchoStar officially expires at the end of January. Any talks before then could jeopardize a $600-million break-up fee the agreement requires EchoStar to pay Hughes if the deal doesn’t go through. EchoStar also agreed to buy Hughes’ PanAmSat satellite firm for $2.7 billion if the deal busts.

Analysts expect EchoStar to challenge the break-up penalties in court, which could further delay any Hughes sale.

Murdoch played a role in undermining the merger by hiring lobbyists to pressure Congress and state attorneys general to oppose it as a monopoly. Over the last year, he also has amassed a cash war chest to make another run for Hughes in anticipation of the EchoStar deal collapsing.

At a recent investor conference sponsored by Goldman Sachs & Co., he said the price and structure of any new bid would be different.

After all, GM’s 30% stake in Hughes, which trades as a tracking stock, has sharply declined in value. It now is worth about $3 billion--half of what it was a year ago.

As a result, Wall Street sources say News Corp. may not need partners. Its balance sheet now is healthier, with nearly $3 billion in cash reserves. Murdoch sold Fox Family Worldwide to Walt Disney Co. for $5.2 billion last year to raise money for the Hughes bid. The company recently registered to sell off to the public an additional $1.5 billion in equity in its Fox Entertainment Group subsidiary.