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Analysts Say Management Buyout at DirecTV Unlikely


Investment bankers say a media buyer such as News Corp. would have the upper hand in any bidding war for DirecTV's parent, Hughes Electronics Corp., if the satellite TV concern's proposed sale to EchoStar Communications Corp. is blocked by federal regulators.

Although Hughes' management may be able to assemble its own bid to buy the company by bringing in a financial backer, a media giant such as News Corp. probably would be able to pay a higher price, investment bankers and analysts said Wednesday. One reason is that News Corp. already has satellite operations worldwide and could count on cost savings from combining DirecTV's operations to justify a higher price, analysts said.

El Segundo-based Hughes on Wednesday issued a statement by Chief Executive Jack Shaw denying that the company is "working on plans" for a management buyout, and saying the company's top priority is getting the EchoStar merger approved by regulators.

But in recent weeks, sources within the company said, Hughes' executives have pondered the idea of a buyout as a fallback position. This comes as regulators appear ready to block the DirecTV-EchoStar merger or impose conditions too onerous to accept.

Last October EchoStar outbid Rupert Murdoch's News Corp. to purchase Hughes in a cash and stock deal then valued at $26 billion. But the merger presents clear antitrust concerns, according to many analysts and economists, because it would combine the nation's only two satellite-TV providers into a monopoly serving nearly one-fifth of U.S. homes

The future of Hughes has been uncertain for almost three years, since speculation first surfaced that its parent, General Motors Corp., might sell the fast-growing satellite unit. GM owns a controlling 30% stake in Hughes, which is a GM tracking stock.

In early 2000, the satellite subsidiary had a market value of more than $40 billion, compared with $11 billion today. Part of the Hughes loss is due to the general stock market meltdown. But the decrease also is partly due to soaring operating costs at DirecTV, which accounts for about two-thirds of Hughes' revenue.

Shareholders blame GM for allowing Hughes to drift as the auto maker's management waffled on whether to keep the satellite subsidiary or sell it. GM also spent more than a year negotiating a Hughes sale to News Corp., only to change course at the eleventh hour when EchoStar trumped the offer.

If the merger is rejected, Hughes shareholders could face another prolonged period of uncertainty as GM decides whether to keep operating Hughes, find another buyer or spin off the satellite group.

"GM will be 0-2 if the merger is rejected, so they need their next move to succeed because shareholders are already frustrated," said analyst Jimmy Schaeffler of the Carmel Group, a market research firm.

Investment bankers said the heavy level of borrowing that probably would be required for a management-led buyout of Hughes would make such a bid a longshot given today's conservative lending environment and Wall Street's disdain for heavy debt.

"It's hard to see any leveraged buyout getting done here because of today's more conservative lending practices and because the financial markets are spooked," said one investment banker.

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