Rupert Murdoch's News Corp. agreed to acquire controlling interest in DirecTV, the nation's largest home satellite television service, for $6.6 billion in a cash-and-stock transaction announced yesterday.
If approved by federal regulators and stockholders, the deal will complete Murdoch's global satellite empire and create a powerful combination of programming and distribution, giving his Fox News and Fox Network programs a digital pipeline into 11 million U.S. homes.
Eighteen months earlier, Murdoch was outbid for DirecTV by satellite television giant EchoStar Communications Corp. But federal regulators opposed the merger on antitrust grounds.
"It's very satisfying," Murdoch said in a conference call yesterday. "For a long time we've had ambitions to be in the distribution business here and elsewhere."
DirecTV is owned by Hughes Electronics Corp., which is in turn owned by General Motors Corp. In the deal, News Corp. would buy the 19.9 percent of Hughes shares owned by GM and 14 percent of its publicly owned shares, giving New Corp. controlling interest in Hughes.
"From a Hughes shareholder perspective, this is a really nice deal," GM President G. Richard Wagoner Jr. said during the conference call. The deal "allows us to focus on our core automotive operations," he said.
News Corp. is one of the world's largest media companies. In addition to the Fox television network and regional sports channels, it owns the 20th Century Fox movie studio, Sky News, the FX cable channel, several U.S. television stations and the National Geographic Channel. The company also owns the Weekly Standard political magazine, TV Guide, several newspapers in the United States and abroad (including the New York Post), HarperCollins Publishers, the Los Angeles Dodgers and a rugby league in Murdoch's native Australia.
Fox produces shows including "Joe Millionaire" and "American Idol," while Fox News Channel is the top-rated cable news channel, with popular talk shows such as "The O'Reilly Factor." DirecTV will soon offer interactive features, as his overseas systems do, Murdoch said.
In the DirecTV deal, GM receives $3.1 billion in cash, with the rest coming in News Corp. stock. Hughes stockholders would get $14 per share in the sale, a premium of 22 percent over yesterday's closing price of GM Class H, the Hughes tracking stock.
Murdoch would become chairman of DirecTV and Chase Carey, a News Corp. adviser, would become president and chief executive. Carey said no other personnel changes are planned.
The acquisition would satisfy a hunger Murdoch has long held for DirecTV and U.S. satellite assets. He tried to buy DirecTV in 2001 but was bested at the last minute by EchoStar, whose $20 billion bid was favored by Hughes. EchoStar chief executive Charles W. Ergen had hoped to add DirecTV's customers to his 8 million subscribers and create a satellite powerhouse to compete against the cable industry. But the merger was killed last fall by the Federal Communications Commission and the Justice Department, both of which ruled that it would create a monopoly that could raise subscription prices with impunity.
Murdoch is not expected to face similar regulatory hurdles, antitrust experts said, because there would continue to be two competing satellite services. However, there may be concerns that News Corp. would own several channels of content and a distribution channel in DirecTV. Such a relationship is referred to as "vertical integration," in which one media company owns programming as well as cable systems and broadcast networks.
Vertical integration became an issue with federal regulators in the 2000 merger of Internet service provider America Online Inc. and media giant Time Warner Inc.
"Those issues may spark an investigation but at the end of the day, I don't think the Justice Department will challenge the News Corp. acquisition," said antitrust lawyer Charles E. Biggio of Akin Gump Strauss Hauer & Feld LLP. Biggio worked in the Justice Department's antitrust division from 1995 to 1998. "The vertical issues are typically less sensitive than the horizontal issues."
EchoStar did not comment on the deal.
"The only possible thing that could've attracted criticism we have addressed and that is to have open access to our platform to all suppliers," Murdoch said. "That is not to use [DirecTV] in any way exclusively for Fox or News Corp. products."
Regarding vertical integration, Murdoch said: "That has been fought and won by Time Warner, Comcast and plenty of other companies in this country already." Murdoch acknowledged that the deal could hit a regulatory bump in Latin America, where News Corp. and DirecTV both have satellite operations.
The deal aroused concern from Consumers Union, the advocacy organization that publishes Consumer Reports magazine.
"This transaction comes at a time when the FCC is considering relaxing or eliminating limits on local and national television station ownership, and considering abandoning the prohibition on owning a newspaper and television broadcast station in the same community," said Gene Kimmelman, senior director of public policy. "Consumers Union believes that the News Corp.-DirecTV deal illustrates the danger of allowing one company to gain excessive control over local and national media properties, and calls on the FCC to tighten rather than loosen current media ownership rules."