DirecTV in the News

News Corp Ready to Walk Away From DirecTV

NEW YORK (Reuters) - March 15, 2001 - Rupert Murdoch's News Corp. is ready to walk away from its deal to merge its satellite operations with Hughes Electronics Corp.'s DirecTV amid a struggle over control of the proposed combination, sources said Thursday.

News Corp., whose holdings include the Fox television network, the 20th Century Fox film studio, and newspapers such as the New York Post and The Times of London, "is getting fed up with negotiations with DirecTV,'' a source familiar with the talks said.

News Corp. spokesman Andrew Butcher said, "We're still hopeful for a deal with DirecTV but we are looking at other options as well.''

Hughes shares fell $1.40 to $19.70 on the New York Stock Exchange (news - web sites), touching a 52-week low of $18.50 earlier in the session. Shares reached as high as $38 in October.

A Hughes spokesman reiterated that the company was in discussions with several parties and also considering several options. He declined to comment further.

Paul Xiradis, equities director at Sydney-based fund manager Ausbil Dexia, said that he did not see many alternatives for Hughes. "I think News Corp. is in a fairly strong position,'' he said.

Other sources said, however, that if Hughes could find a suitor with a stronger balance sheet and the ability to offer more cash, it could take that offer.

News Corp. has requested a meeting with the boards of Hughes and its parent General Motors Corp. to formally present its original proposal, another source familiar with the matter said.

The parties had agreed on the outline of a complicated $70 billion deal last month that would combine News Corp.'s Sky Global Networks, which holds News Corp.'s satellite operations in Europe, Asia and Australia, with DirecTV, the largest U.S. satellite service, creating a potential global powerhouse.

But negotiations have bogged down over who will control the combined company and the price of the deal.

"It comes down to control,'' one source said. "(Hughes Chairman) Michael Smith doesn't want to relinquish control of the company.'' Under the original proposal, News Corp. would own a 35 percent stake but would control the day-to-day operations.

Other sources have noted that News Corp.'s balance sheet was too debt-ridden to pay cash, forcing it to use to stock to pay for the deal. Since the deal was announced on Feb 9., News Corp.'s American Depositary receipts have declined 14 percent to $33 at Thursday's close on the New York Stock Exchange.

Microsoft Corp. is believed to be committing as much as $5 billion in cash to the deal.

In the meantime, News Corp. opened negotiations with EchoStar Communications Corp. three weeks ago about combining their satellite operations.

Although relations between Murdoch and Echostar Chief Executive Charlie Ergen have often been stormy, one source close to the situation said, "Talks are moving ahead better than expected.''