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April 10, 2003

USA: GM agrees $US6.6 billion sales of Hughes controlling interest to News Corporation – paper

General Motors is set to make $US 6.6 billion by selling control of Hughes Electronics and its DirecTV satellite television operation to media magnate Rupert Murdoch's News Corporation, according to the New York Times (NYT).

By Olly Wehring

General Motors is set to make $US 6.6 billion by selling control of Hughes Electronics and its DirecTV satellite television operation to media magnate Rupert Murdoch’s News Corporation, according to the New York Times (NYT).

But the newspaper noted that News Corporation’s latest offer for Hughes was significantly lower than the amount it offered — a deal worth about $22.5 billion – in a 2001 bidding war with rival satellite TV operator Echostar Communications.

That successful Echostar bid of about $30 billion (figures in Thursday’s press reports range from $27-$32 billion) was rejected by US regulators late last year after Murdoch waged a behind-the-scenes lobbying campaign to block the agreement, giving him a second chance.

The NYT said the fact the deal was rejected called into question the decision by General Motors to accept EchoStar’s offer when it knew the chances of that deal being blocked were high.

According to the New York Times. GM chief executive Rick Wagoner contended in a conference call yesterday that “the economic value is roughly the same” from this deal with the News Corporation, compared with its offer in 2001, but the paper added that he declined “to explain his math”.

Meanwhile, a banker who worked on the transaction laughed when he heard of Wagoner’s comments, the NYT added.

The paper said that, under the terms of the deal, which must be approved by Hughes shareholders, the News Corporation would buy GM’s 19.9% stake in Hughes for $14 a share, or $3.8 billion. Of that amount, at least $3.1 billion would be paid in cash, with the rest in News Corporation publicly traded securities.

The company would then make a tender offer for 14.1% of the publicly traded Hughes shares for $14 a share in cash or News Corporation securities.

The New York Times said the deal ended nearly three years of bidding wars, changing alliances and regulatory jockeying as Murdoch sought to take over DirecTV in an effort to make the News Corporation the dominant television distributor in the world.

The NYT said News Corporation’s deal for Hughes will require the approval of regulators, including the Justice Department and the Federal Communications Commission, and some consumer groups are already calling for this deal to be blocked as well.

But unlike the deal with EchoStar, which would have combined the nation’s two largest satellite television companies, legal experts suggested that the deal with the News Corporation would be approved because the company does not already compete in the satellite distribution business in the United States, the paper added.

The price represents a 22% premium over Hughes’s stock price, which closed yesterday at $11.48, down two cents, before the deal was formally announced, the New York Times said.

GM is planning to use the cash it receives from the deal to reduce its debt and strengthen its balance sheet, the paper added.

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