Why Malone desires DirecTV

Ronald Grover
25 Sep 2006
00:00

What does John Malone see in satellite television that Rupert Murdoch missed‾ That's the $10 billion question that has media experts puzzled, now that the onetime cable supremo is negotiating to secure a 38% controlling stake in DirecTV Group (DTV ) from Rupert Murdoch's News Corp. (NWS ).

DISH

) have been signing up fewer subscribers in the last 18 months than in the super-heated prior decade, a trend that analysts say shows no sign of reversal.

WHAT WE KNOW.

LINTA

) has a new chief executive, former Oracle (

ORCL

) president Gregory Maffei, who has been busily striking deals to beef up the company's media properties. Malone also may have a way to offer broadband to DirecTV subscribers.

And Malone, say intimates, sees a big exit strategy down the road that will likely mean merging the two satellite companies when telcos gear up to provide the kind of competitive television service that could prompt federal regulators to approve a merger of the two players.

What exactly Malone wants with DirecTV is open to conjecture. He hasn't said anything publicly about the possible agreement, although sources in both camps say Malone and Murdoch have been talking for more than a month about using the DirecTV stake to unwind Liberty's position in News Corp.

The outline of the deal: Malone would swap Liberty's 19% stake in News Corp. for its 38% controlling stake in the satellite TV company. For Murdoch, who would likely retire Liberty's 19% stake"”which would also boost his own stake via fewer outstanding shares"”the deal gives him some breathing room from an investor whose mere presence forced News Corp. to erect a poison pill defense.

TAX TRADEOFF.

UBS

) analyst Aryeh Bourkhoff.

'Rupert was more interested in keeping cash on hand,' he says. The deal swap could also signal that Malone, who has stayed largely out of the media spotlight since selling off his Tele-Communications cable operations to AT&T in 1999, may finally be willing to build the media company his shareholders have desperately craved.

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