Insight Analysis: Murdoch Walks Away From ‘Dream’ DirecTV Deal
Rupert Murdoch, frustrated by delays and months of torturous negotiations, has walked away from what many considered the ‘dream’ deal of his career – one which would have made him the greatest TV mogul ever, reaching more people in more countries than anyone else in history.
The GM board had been in lengthy discussions as to which bid to accept, Murdoch had brokered a complex and cash-free deal worth roughly $30 billion whilst EchoStar’s bid totalled around $26 billion including a key cash element of $5.5 billion – thanks to a bridging loan from Deutsche Bank and UBS Warburg. After allowing EchoStar more time to ‘beef up’ their bid, the GM board announced that it was delaying its decision by a further 48 hours. Following 18 months of preparation and six weeks of smallprint negotiations with GM, Murdoch had a toys-out-of-pram moment and withdrew his offer claiming that he felt ‘deceived’ by GM’s lack of good-faith.
In a telephone call to John Devine, chief financial officer at GM and Murdoch’s ‘man’ on the GM board, Murdoch is said to have vented spleen over the way he was led to believe that the GM board favoured his offer over the ‘shaky’ EchoStar bid. After another day of discussions, the GM board approved the EchoStar deal on Sunday evening and will sell Hughes Electronics to EchoStar in a reverse merger transaction.
GM will sell $4.2 billion of Hughes stock to EchoStar whilst retaining some ownership themselves, EchoStar would get four of nine board seats and gain the right to appoint one or two independent directors and EchoStar chairman Charlie Ergen would own 17% of the stock but have a voting stake of about 37%. EchoStar is expected to plough cash into Hughes Electronics whose losses have grown from $88 million to $227 million year-on-year despite growing subscriber numbers.
Comment
At the time of Murdoch’s withdrawal from the proceedings there were many who considered his actions ‘brinkmanship’ and believed that all parties would be involved in further negotiations prior to a decision being reached. Murdoch, however, was adamant that ‘the game was over’ and News Corp issued a statement to this effect immediately. “We have no option but to withdraw immediately our fully negotiated and financed proposal. Hughes would have been an excellent strategic fit for our global platforms, and we are disappointed with the board’s inaction in the face of an as-yet unfinanced counter-proposal.” read the statement.
If things proceed as planned, i.e. EchoStar takes control of DirecTV and Murdoch walks away from the deal, it will prohibit the growth of News Corp’s global satellite operations and all but close the US satellite market to Murdoch. However, given that DirecTV, the number one satellite broadcaster in the US is now merging with EchoStar, number two in the market, there are competition issues which must be addressed by regulatory bodies in the US.
In an interview recently Ergen said “I’m confident there will be no regulatory problem, we’re still a relatively small fish in a big pond.”