News Corp.'s DirecTV deal draws mixed reviews

Thu, 04/10/2003 - 8:00pm

Copyright 2003 Newsday, Inc.

Newsday (New York)

April 11, 2003 Friday ALL EDITIONS

Rupert Murdoch's deal to gain control of DirecTV will increase competition among satellite TV and cable TV providers and strengthen the clout of his News Corp., analysts predicted yesterday.

But they criticized the media giant for the price and structure of the $6.6-billion deal, announced Wednesday.

News Corp.'s stock price dropped 6.5 percent, or 77 cents per share, to $25.45. Shares of Fox Entertainment, the unit that will contain DirecTV and that is taking on an extra $4.5 billion in debt and issuing $2 billion in stock to help pay for it, plunged $4.65, or 17 percent, to $22.60.

"The size of the offer premium appears high, given that News Corp. was the only buyer left, and as the deal was uncontested," Smith Barney analyst Jill Krutick said.

The analysts especially focused on the deal's effects on Fox Entertainment, which runs Fox Channel.

"Despite our view that the a strategic positive for Fox on a number of levels, the structural nature of the transaction is of concern to us," wrote Merrill Lynch analyst Jessica Reif Cohen, who lowered her rating to "sell."

Karim Zia, an analyst at Deutsche Bank Securities, said News Corp. could grab a bigger share of the pay TV market from cable. DirecTV has more than 11 million customers.

Reif Cohen said in places like New York, Los Angeles and Chicago, where News Corp. already has two local broadcast TV stations and regional sports channels, it could package them with new regional satellite channels. It could also re-negotiate deals to lower its costs of carrying cable networks. Among the biggest questions, though, is whether News Corp. can jump-start subscriber growth, which peaked in 2000.


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