DirecTV deal wobbling?

GM may not be willing to sell DBS unit to News Corp.

Rupert Murdoch's enduring lust for a U.S. DBS play may once again go unfulfilled. Industry and Wall Street executives are growing skeptical that General Motors will actually sell its Hughes Electronics and DirecTV operation.

Signals from GM officials and a new round of solicitations from other buyers have industry players doubting that GM will be willing to sell the company, particularly to be merged into News Corp.'s Sky Global international DBS operations.

"The problem is that both sides are overvaluing their assets," said one analyst. "At the end of the day, I think most people overestimate the cash flows from DirecTV."

Hughes' stock has been dropping ever since word broke two weeks ago that Murdoch was talking about a deal that would value Hughes only around $35 billion. "They leaked the deal to the Street; the Street said we don't like it," said one investment banker. "I think GM screwed up, had this auction, thought there would be five bidders, and there's only one."

That, Wall Street bankers and analysts said, is why News Corp. Chairman Murdoch acknowledged Tuesday that talks continue but at a "slow and grinding pace." He wants to pull a reverse merger, push his Sky Global unit-which includes U.K.'s BskyB and Asia's Star DBS services-into Hughes, give Hughes shareholders most of the stock plus some cash, and wind up running the combined operation.

But the valuations aren't right. GM owns 30% of Hughes, which is a tracking-stock subsidiary of the car manufacturer. When GM started talking about selling Hughes last year, the unit's stock was in the mid-$30s, and it appeared the company could get nearly $50 per share from Murdoch. Now the stock is at $22 and might sell for $35.

So instead of a $45 billion-or-so valuation, GM officials are looking at a $30 billion valuation. Money managers said GM and Hughes executives have been quietly asking what the market's reaction might be if DirecTV is not sold.