It's still no deal

Even ruthless industrial and media moguls have needs, and Rupert Murdoch's snagged attempt to take over DirecTV still leaves all sides scrambling for fulfillment.

News Corp. Chairman Murdoch's needs are the least immediate. For years, he has longed for a U.S. DBS operation to match the Asian and European operations controlled by his SkyGlobal unit.

But the needs of DirecTV's masters are more urgent. Nominal parent Hughes Electronics will need $2 billion in cash this year, by one estimate, to cover expansion at DirecTV and its other units. And ultimate parent company General Motors needs a few billion dollars to calm debt holders worried about the car manufacturer's operation in the face of a recession.

Then, of course, there are the Wall Street deal makers, who badly need a fee fix amidst the near shutdown of the merger market. "This one's the only game in town," said the head of investment banking for one Wall Street firm.

Sources involved in the deal said that GM has given Hughes Chairman Michael Smith until the end of the month to come up with a workable way for the car company to extract cash out of the satellite operation. That includes a sale, a spin-off that would let GM "monetize" its 30% stake, or bringing investors in for partial stakes. He has tested the interest of General Electric Corp., which just agreed to sell its own satellite operation and telco SBC Corp. Murdoch and his backers, Microsoft Corp. and Liberty Media Corp., are other targets.

Smith critics contend he won't sell because he wants to control the operation himself. Supporters question why anyone but Murdoch wants GM to sell when the market is in the tank, with Hughes stock off 40% in the past year. "Isn't it buy low, sell high?" asked one investment banker.

Smith defended himself at a recent investment conference, saying that accusations that he's looking out for himself are "absolutely false and untrue." His only commitment is to maximizing value for shareholders.

"The worst for Hughes' stock would be if they don't do anything," said Merrill Lynch & Co. satellite analyst Marc Nabi.

After taking the standard "cautiously optimistic" stance for a month or so, Murdoch now openly acknowledges that his year-long attempt to buy Hughes and its 10-million-subscriber DirecTV unit, led by Eddy Hartenstein, is on the rocks. Speaking at the SkyForum in New York last Thursday—an appearance that News Corp. once expected Murdoch would use to tout a DirecTV deal—the media baron waxed rhapsodic about SkyGlobal's international operations and its sizable stake in interactive program guide vendor Gemstar.

"Is SkyGlobal viable without a U.S. presence?" Murdoch asked. "Of course it is. That's a bit like asking whether the Louvre could exist without the Mona Lisa … We, like the Louvre, have plenty of other treasures."