Cable mogul John Malone is backing News Corp.'s bid for satellite TV leader DirecTV rather than making an offer of his own, ending months of speculation about a potential rivalry between the two longtime media partners.
Malone's Liberty Media Corp. and News Corp. jointly announced a financial arrangement Thursday in which Liberty will invest $500 million in News Corp. to help finance a bid for DirecTV parent Hughes Electronics Corp., which could cost at least $3 billion.
Until recently, it had been assumed that Malone and News Corp. Chairman Rupert Murdoch would team up on any bid for Hughes. With an 18% equity stake, Liberty Media is the largest shareholder in the Australian-based media giant after the Murdoch family, and had a history of joint ventures.
But in the last two months, sources close to Malone said he was considering a solo bid as he looks to turn Liberty from a portfolio of mostly minority media stakes into a full-fledged media giant through several potential acquisitions.
The development leaves DirecTV with two potential suitors: News Corp. and SBC Communications Corp., the nation's second-largest telecommunications provider. It is unclear just how serious the phone company is about an acquisition. SBC Chairman Edward E. Whitacre Jr. has met once since January with General Motors Corp., which owns Hughes, while Murdoch has had a handful of meetings, according to a source close to the talks.
Although SBC has the financial muscle to bid for 100% of Hughes, both News Corp. and Liberty have been interested in buying only GM's 20% stake in the El Segundo-based company.
"The stake we might have gotten wasn't enough to exert operating control," said Liberty spokesman Mike Erickson, explaining the company's change of heart.
Thursday's accord gives News Corp. access to additional financing. Under the deal, Liberty has the right to buy up to $500 million worth of News Corp. preferred stock over the next six months at a price of $21.50 per U.S.-traded preferred share. If Liberty doesn't exercise its right, News Corp. can require Liberty to purchase the stock at that price if Murdoch acquires a stake in Hughes within two years.
Both scenarios would increase Liberty's stake in News Corp. from about 1% to 19%.
On Thursday, News Corp. U.S.-traded common shares dropped 3 cents to close at $26.08 on the New York Stock Exchange.