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Malone, Murdoch talking trade; Possible deal would give Liberty stake in DirecTV operations

Fri, 09/15/2006 - 7:33am

Copyright 2006 Denver Publishing Company
Rocky Mountain News (Denver, CO)
September 15, 2006 Friday
Final Edition
By Joyzelle Davis
From Lexis Nexis

News Corp. is in talks with Liberty Media Corp. to trade its controlling stake in DirecTV Group Inc. to Liberty.
 
In exchange, Douglas County-based Liberty would hand over its 19 percent stake in News Corp.

If a deal is reached, Denver would become the satellite-television capital of the country, home to both DirecTV and its rival EchoStar Communications.

The Wall Street Journal and CNBC reported the discussions between the companies late Thursday, citing unnamed sources.

The deal would also catapult Liberty Media Chairman John Malone back to a position of prominence in the U.S. media sector, several years after he sold cable giant Tele-Communications Inc.

The deal would allow News Corp. Chairman Rupert Murdoch to solidify his family's control of News Corp. In late 2004, Liberty disclosed it had doubled its voting stake in News Corp. to 19 percent, putting Liberty's holding less than a dozen percentage points below the roughly 30 percent voting stake held by the family of Murdoch.

News Corp. quickly adopted a poison-pill takeover defense to block Liberty from buying more stock, although the company's position has since inched up to 19 percent.

Since late 2004, the two companies have been negotiating off and on about ways that Murdoch could buy back Liberty's stake. News Corp.'s 38.3 percent stake in DirecTV is about $9 billion at DirecTV's current market value, a little less than Liberty's 19 percent stake in News Corp., which is valued at $11.2 billion.

The two have also talked about swapping some of News Corp.'s local television stations for a portion of Malone's stake.

Murdoch's willingness to consider giving up News Corp.'s stake in DirecTV comes as the fortunes of the U.S. satellite-television business have been declining, as intensifying competition from cable-TV operators and the entry of phone companies into the TV market have sharply eroded satellite growth.

Both DirecTV and its main rival, Douglas County-based EchoStar, have seen their rates of subscriber growth weaken in the past year as cable operators market their so-called triple-play offerings of phone service, high-speed Internet and television.

The slowdown has put pressure on EchoStar and DirecTV to consider merging or at least combining some of their operations.

It is also forcing the firms to spend more to sign up new customers, as they offer subsidized digital video recorders and other incentives.

Malone has long had an interest in satellite TV. Liberty considered bidding against News Corp. for control of DirecTV when it was being sold by its former controlling shareholder, General Motors Corp.

Liberty backed off, worried that News Corp. would simply outbid it, and instead Liberty increased its stake in News Corp., deciding to get its exposure to the satellite industry through the media giant. Liberty also considered buying EchoStar several years ago.

"I had always coveted being in the satellite business," said Malone in an interview early last year.

The talks were first reported Thursday by CNBC.

Liberty Media spokesman John Orr and DirecTV spokesman Robert Mercer declined to comment.

News of the talks comes shortly before News Corp.'s annual meeting, at which shareholders will vote on whether to extend the poison pill.

The company agreed to put the pill to a vote as part of a settlement with a group of shareholders who had sued over the company's decision to renew the pill without a shareholder vote. The outcome of the vote isn't binding. If shareholders reject the pill, News Corp. would likely end up back in court with its shareholders.

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