NEW YORK (CNNfn) - Rupert Murdoch and John Malone, two of the most powerful names in modern media, finalized a complicated stock-swap transaction Wednesday giving Murdoch's News Corp. a sizable interest in Gemstar-TV Guide International and, possibly, a significant boost to his attempts to acquire Hughes Electronics Systems.|
The agreement, rumored since late last week, transfers 80 percent of Liberty Media's 21.5 percent stake in Pasadena, Calif.-based Gemstar (GMST: Research, Estimates), the world's leading provider of interactive programming guides, to News Corp.
The remaining 20 percent interest will be transferred to News Corp.'s global pay-TV subsidiary, Sky Global Networks, making the media and entertainment conglomerate Gemstar's largest shareholder with a 43 percent stake valued at approximately $12.1 billion based on Tuesday's closing price.
In exchange, Malone's Liberty Media (LMG.A: Research, Estimates) would receive approximately 121.5 million shares of News Corp.'s non-voting American depositary receipts, representing a nearly 13 percent, or $6.54 billion, stake in the company. Malone already controls approximately 7 percent of News Corp.'s stock, transforming him into the company's largest shareholder outside the Murdoch family.
"The world is just now beginning to appreciate the power and capability of Gemstar's patented electronic programming guide," said Murdoch, News Corp.'s chairman, on a conference call with reporters and analysts. "Our increased ownership in Gemstar-TV Guide gives us the opportunity to gain controlling stake over the management of that company in the future, as well as a greater stake in what we believe will be a great growth industry."
"It's hard to see how there really is a downside here for Gemstar," agreed John Corcoran, an analyst with CIBC World Markets, who noted that while the deal was short on near-term revenue synergies, its long-term value could increase significantly if Sky Global customers agree to begin using Gemstar's VCR Plus programming product.
"Gemstar is not selling to any of these [customers]," Corcoran said. "Murdoch doesn't own them all, he can't pound his fist on the table and make them sign up, but it puts Gemstar in a much better competitive position than it's in now."
Still, analysts noted the agreement reached between Murdoch and Malone, old friends who collaborated on building such successful media ventures as the Fox Sports television network and TV Guide, might simply represent an important first step of a broader strategy for Murdoch.
The media mogul has long coveted making a play for a U.S.-based satellite operation such as Hughes Electronics Corp. (GMH: Research, Estimates), hoping to fill out Sky Global's expansive international operations, which currently reach more than 85 million households despite a gaping hole in the United States.
Analysts predicted he would use this acquisition to create enough value in his stock to pursue such a deal.
"I think it's too early to comment on that," Murdoch said of the subject Wednesday. "I think you can certainly discern that we would certainly be interested if General Motors decides to do anything."
News Corp. already has disclosed plans to spin off Sky Global later this year, creating what some analysts believe will become a valuable equity that could in turn be used to help scoop up Hughes, the fast-growing satellite subsidiary owned by General Motors Corp. (GM: Research, Estimates), and operator of DirectTV.
In addition to transferring its equity stake, Liberty Media also agreed to exchange its interests in Sky Global Network's Latin American operations, boosting the satellite company's asset value even higher. Indeed on Wednesday, Murdoch pegged the overall market value of Sky Global's IPO at $40 billion.
GM, meanwhile, has struggled to find ways to unlock the value of the Hughes stock, which acts as a tracking stock for its shareholders. Many expect the company to sell the division outright within the next few months, and Murdoch figures to be standing at the head of the line.
Malone stays in background
In return for its Sky Global asset contribution, Liberty Media would receive additional shares of Sky Network's Class A stock, giving the Englewood, Colo.-based cable and television operator a 4.76 percent overall stake in the satellite company.
Malone, Liberty Media's chairman, also agreed to acquire $500 million worth of Sky Global's common stock when it goes public, raising his overall interest in the company to roughly 6 percent at the time of the IPO.
Still, Malone insisted his investment in News Corp. is, for now, a passive one. He did not receive a seat on News Corp.'s board as part of the agreement, nor will he be involved in the day-to-day operations of either News Corp. or Gemstar.
However, Murdoch, who called Malone "a trusted friend and advisor," hinted such opportunities clearly might arise down the road.
"These shares don't carry rights and requirements," Murdoch said of Malone's 20 percent News Corp. stake. "On the other hand, John's a friend and always would be welcome on our board."
Still, the agreement clearly gives Liberty Media, a cable and television station operator, a much greater role and stake in the future of News Corp., owner of such diversified holdings as Fox Entertainment Group (FOX: Research, Estimates) and the Los Angeles Dodgers professional baseball team.
Malone has developed a golden touch when it comes to media companies, helping turn around such operations as Tele-Communications Inc. and Turner Broadcasting, a unit of Time Warner Inc. which owns CNNfn, before taking the helm at Liberty Media, a wholly owned subsidiary of AT&T Corp. (T: Research, Estimates).
"We see this as kind of a triple play," Malone said. "We get a substantially bigger economic stake in News Corp., which we've always regarded as having a great global strategy in a consolidating media world, we get a direct investment in Sky . . . and we continue to protect our investment in Gemstar."
News Corp.'s ADRs gained $2.25 to $56.06 in late afternoon trading while Gemstar jumped $4.06 to $72.62, although that was well off its high of $77 per share for the day.
Liberty Media's class A shares rose 19 cents to $18.56 while Hughes Electronics inched forward 52 cents to $36.10.