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News Corp. Withdraws Bid for GM's Hughes Unit

October 28, 2001|SALLIE HOFMEISTER | TIMES STAFF WRITER

In yet another twist in the year-long saga to sell Hughes Electronics Corp., News Corp. withdrew its bid late Saturday after the board of General Motors failed to vote on two competing offers for the subsidiary, which owns the prized DirecTV satellite television service.

Directors of the automotive giant, which is the controlling shareholder of Hughes, met for eight hours but adjourned without approving proposals from News Corp. or EchoStar Communications Corp.

Sources close to the situation said the board ordered management to further study the financing of EchoStar's bid. As of late Saturday, Littleton, Colo.-based EchoStar, DirecTV's only satellite competitor in the United States, still was trying to secure financing for its offer, worth about $30 billion.

The GM board could reconvene as early as today or Monday, at which time it could vote on whether to accept the EchoStar proposal if financing is in place. EchoStar Chairman Charles Ergen needs a $5.5-billion loan to satisfy GM's demand for cash for most of its 30% equity stake in Hughes.

But a proposed deal with EchoStar, the nation's only other satellite TV provider, has already raised concerns among members of Congress and others, and it would face scrutiny from antitrust regulators.

Sources said GM could also decide to pull Hughes off the auction block altogether. In the year since GM put the subsidiary up for sale, Hughes' value has fallen dramatically, to $13.5 billion Friday from $33 billion, as a result of troubles at DirecTV and the stock market downturn.

GM spokeswoman Toni Simonetti would not comment Saturday on the meeting, the company's plans or News Corp.'s withdrawal.

News Corp. chief Rupert Murdoch had warned GM going into the meeting that he would withdraw if the board delayed again. Though EchoStar emerged as a bidder in August, News Corp. has been at the bargaining table for more than a year and has been ready on at least three occasions to announce a deal, only for GM to balk at the last minute.

For Murdoch, failure to win DirecTV would be a costly disappointment. Acquiring El Segundo-based Hughes would fill a gaping hole in his satellite empire, which reaches nearly every corner of the globe except the United States and China. A merger with the nation's leading satellite TV provider would create a powerhouse with unparalleled entertainment and sports content.

People close to GM said Murdoch's withdrawal is a negotiating ploy. They predicted that his bankers, who will lose billions of dollars in fees if his bid fails, will persuade him to reinstate his offer.

Yet News Corp. sources insist that there will be no further discussions with GM. They concede, however, that the company would buy Hughes if the auto maker accepted its offer. Though News Corp. has not disclosed its asking price, it is believed to be close to $29 billion.

"We have no option but to withdraw immediately our fully negotiated and financed proposal," Murdoch said in a statement. "We are disappointed with the board's inaction in the face of an as-yet unfinanced counterproposal."

Sources close to the situation said the board agreed to reconvene after receiving a letter Saturday afternoon saying that EchoStar was closer to finalizing terms with its banks. Sources said that Deutsche Bank has committed to half the loan, but that a second bank, UBS Warburg, was wavering.

In his statement, Murdoch suggested that he was resigned to EchoStar winning. "This means there will be no choice for millions of television consumers in rural America," he said. "With this saga finally concluded, we will return with renewed vigor and sharpened focus to maximizing our worldwide media businesses."

EchoStar operates the Dish Network, which has 6.7 million U.S. subscribers. A combined EchoStar and DirecTV would reach 16.8 million, or 20% of all pay-TV households.

Several members of Congress have expressed concern about a merger of the nation's only two satellite companies because it would limit millions of rural customers to only one TV provider.

Some rural communities are not wired for cable and therefore have only the choice of DirecTV or EchoStar's Dish Network.

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