Filed by The News Corporation Limited
Pursuant to Rule 425 under the Securities Act of 1933
and Deemed Filed Pursuant to Rule 14a-12
under the Securities Exchange Act of 1934
Subject Companies: Hughes Electronics Corporation
Commission File No. 000-26035
General Motors Corporation
Commission File No. 001-00143
NEWS CORP
Moderator: Gary Ginsberg
April 10, 2003/7:30 a.m. CDT
NEWS CORPORATION
April 10, 2003
7:30 a.m. CDT
Coordinator Good morning, and thank you for standing by. Your lines
have been placed on a listen-only mode until today's
question and answer segment. Today's conference call is
being recorded. If you have any objections, please
disconnect at this time.
I would now like to turn your call over to Mr. Gary Ginsberg,
Executive Vice President of Investor Relations and Corporate
Communications. Thank you, sir, you may begin.
G. Ginsberg Thank you, operator. Good morning, everyone, and thanks for
joining us. Today we'd like to briefly summarize the terms
of the deal announced yesterday, under which News Corp acquired
a 34% interest in Hughes Electronics. We'll explain the
rationale behind the deal, and then leave the majority of the time
for your questions.
On today's call are Rupert Murdoch, Chairman and Chief Executive
of News Corp.; Peter Chernin, President and Chief Operating
Officer of News Corp; Lachlan Murdoch, Deputy Chief Operating
Officer; Dave DeVoe, Chief Financial Officer; and Chase Carey,
who upon completion of the transaction will become President and
Chief Executive Officer of Hughes Electronics.
Before I turn the call over to Rupert and then to Chase for their
brief remarks, let me first say that News, GM and Hughes intend to
file a proxy or consent solicitation statement and other materials
with the SEC in connection with the proposed transaction. Because
they will contain important information, investors are urged to read
these materials which, when filed, will become available free of charge
at the SEC's Web site. Investors will also receive information at
an appropriate time on how to obtain transaction related documents
for free from News. This call does not constitute an offer to sell
or solicitation to buy in connection with the proposed transaction,
which will only be made by means of an appropriate prospectus.
On this call we make statements that constitute forward-looking
statements within the meaning of the Private Securities Litigation
Reform Act of 1995. These forward-looking statements involve
known and unknown risks, uncertainties, and other factors, including
those described in News' public filings with the SEC, that
could cause actual results to be materially different from those in
the forward-looking statements.
With that, let me turn the call over to Rupert Murdoch.
R. Murdoch Thank you, Gary. Good morning, ladies and gentlemen. We're here
to confirm the announcement of the extremely exciting event for
News Corporation, Fox Entertainment Group and Hughes Electronics.
Today, after three years of patient negotiations , occasional
frustration, and ultimately great satisfaction, we have reached
an agreement with the boards of General Motors and General Motors
Hughes to acquire a significant 34% stake in Hughes Electronics.
For all three of our companies the benefits of this transaction
are substantial. If it is rare to find a genuine win/win scenario
in our crowded and competitive media landscape, it is truly
exceptional to be able to create a win/win/win scenario as
promising and powerful as the agreement we announced last night.
For the shareholders and customers of News Corporation worldwide,
for Fox and for GMH, today marks the start of a bright future indeed.
Let me briefly summarize the highlights of the definitive deal
that we reached today. Under our agreement News Corporation will
acquire General Motors' 19.9% stake in Hughesat a price of $3.8
billion, comprising $3.07 billion in cash and 34.3 million News
Corporation preferred limited voting ordinary ADRs at a value of
$22.40 each. News Corp will also acquire an additional 14.1%
from public shareholders in GM's pension and other benefit plans
at a price of $14.00 a share, for which we will be using 122.2
million News Corp preferred ADRs, using the same base ADR price
of $22.40. Upon closing of the transaction News Corp's 34%
ownership interest in Hughes will be transferred to Fox
Entertainment Group, an 80.6% owned subsidiary, in exchange for
74.2 million shares of Fox at $27.99, as well as two promissory
notes totaling $4.5 billion.
This agreement is subject to regulatory approval, but we expect
the transaction to close by the end of calendar 2003. At that
point I'll become Chairman of Hughes, Chase Carey will become
the company's Chief Executive Officer, and Eddy Hartenstein will
be a Vice Chairman of the Board. The board will consist of 11
members, including myself, Mr. Carey, Mr. Hartenstein, Peter
Chernin , who's the President and Chief Operating Officer of
News Corporation and CEO of Fox, Dave DeVoe, Chief Financial
Officer of News Corporation and Fox, and six independent directors.
I know one of the first questions you may have is why we're
housing Hughes within the Fox Entertainment Group. The reason
is simple. It belongs there. It belongs there, first of all,
because it maintains the logical structure of News Corporation.
Fox was created to house News Corp's American content and
distribution assets, and as a television distribution platform,
DirecTV obviously fits within the structure. Second of all,
the company's position within FEG will precipitate a mutually
beneficial relationship we look forward to forging between
Hughes and Fox. To Hughes this deal offers the opportunity to
work in close collaboration with Fox to provide its DirecTV
platform with an increasingly rich array of content, programming
and technological services.
For Fox, a DTH platform capable of delivering our content to
American satellite TV viewers represents an invaluable outlet
for our television products. In a landscape of increasing
choice, but also increasing consolidation, such an outlet is
essential if we are to ensure that our existing content and
the content that we will create in the future continues to
reach consumers. We've built assets of immense value at Fox,
assets like our cable channels, for instance, whose long-term
viability will be greatly enhanced by the presence of a sister
distribution platform. But that is an advantage we do not
plan to abuse. As strong a player as we plan to be in the
multi-channel television industry, we have every intention of
being a fair player as well. Both News Corp and Direct have
committed to be bound by the FCC program access regulations,
under which we will make our content readily available to all
satellite television providers, as well as cable and other
competing platforms. Our creative strength as a company will
increase the vitality of the American television market as
a whole, enabling the sort of fair and fierce competition that
our company was built on, and that, quite frankly, we have
always thrived on.
In the case of DirecTV, we will thrive by taking what I feel
is one of America's great television assets and substantially
improving it. The beneficiaries of these improvements will be
the shareholders of News Corporation, Fox and Hughes alike.
All of them will be able to watch their asset grow faster and
fundamentally stronger than was ever possible before. Certainly
we have considerable strength to build on. DirecTV is an
outstanding company with a very strong brand and a large customer
base. Furthermore, I want to tell you that Hughes management
has done a magnificent job running their business and controlling
costs in the uncertain circumstances of the past couple of years.
Over the next few years we plan to take the value of this great
asset and grow it dramatically by employing not only the content
we have created at Fox, but the talents, the programming, the
experience, the technology and the expertise we have developed
at our leading television platforms around the world, which when
added to Hughes will have a total customer base of well in excess
of 25 million homes. We are fully confident that by doing so we
will create greater choice and a greater viewing experience for
all Americans. In the process our efforts will invigorate the
multi-channel industry and help make satellite television a
viable competitor to cable. More programming options, greater
efficiencies, richer content, better customer service and
compelling new technologies will give satellite television its
best chance to break cable's still-dominant hold on viewers.
The person who will oversee our efforts, as I mentioned, is
Chase Carey, who will be the new President and CEO of GMH.
I'm now happy to pass this over to Chase to detail his
strategies and improvements that he has in mind. Thank you
very much.
C. Carey Thanks, Rupert. Before I get into our plan forHughes, I want
to pick up on something Rupert mentioned earlier, and that's
the truly impressive job that Hughes management has done
over the past few years. It is not easy running a company
under any circumstances, and it's certainly a lot harder when
the future of that company is in flux. So it's with a great deal
of admiration that we recognize that team, and we're certainly
highly supportive of them going forward.
The cornerstone of Hughes, of course, is DirecTV, which has
successfully established itself as the market leader in US
satellite television. Second only to Comcast in the number
of multi-channel subscription homes it reaches in the US,
DirecTV has created a fabulous brand and has unique strengths
in areas like customer service, programming and distribution.
DirecTV has taken a number of steps in the past year to further
strengthen its business by addressing issues like cost
reduction. Our goal will to be to bring the expertise of News
Corp to bear as we enhance and expand DirecTV's plans. We see
this as a business with real growth both in revenue and margins,
in both the short-term and the long-term. News Corp.
has a proven track record at building businesses like the Fox
Network and Fox News, as well as firsthand experience in creating
and operating successful satellite distribution businesses like
BSkyB, which is considered the premier satellite platform in the world.
That expertise will be employed across the board at DirecTV.
In the cost area DirecTV's management has acknowledged there
is still considerable work to do. We plan to enhance those
managers' efforts by attacking costs from programming to
marketing, churn, set top box costs, really every area. We
will also work with DirecTV management on a plan to maximize the
platform's growth potential. DirecTV already provides a great
consumer experience, and we'll make it even better. Initiatives
in areas like customer service, marketing, on-screen guides,
program packaging and choice will all be critical as we work to
further increase the excellence of DirecTV's offerings to consumers.
Technology, too, will be a crucial component of our plans to
grow the success of DirecTV. As technological innovations like
PVRs, high definition and interactivity become market realities,
we're confident that DirecTV will build on its leading ability to
bring the most advanced experience to consumers.
While DirecTV is the cornerstone, we also must focus on key issues
across the rest of Hughes. HNS is already the world leader in the
enterprise business and has the opportunity to take that business
to a whole new level with the launch of Spaceway, a system
that represents an entirely new generation of satellite
capability. In other businesses like Latin America there are
significant challenges to address, and we'll work with Hughes
management to determine the best course on these and other
issues in a decisive, expeditious, yet thoughtful manner.
One of the greatest strengths we will bring to this company is the
decisiveness that will enable Hughes to address both problem areas
like Latin America, and areas of opportunity like the launch of
interactivity and other technological innovations. Hughes has
clearly and understandably been handicapped at executing such plans
by their for-sale status. The clarity that comes from the end of
that process, combined with the expertise we bring to the business,
should enable us to energize the decision making that is critical to
the business' growth and improvements from here. We look forward to
meeting all these challenges as we bring to this opportunity the talents,
the experience and the excitement that we have developed in television
markets all over the world. I think there's no greater multi-
channel television business than DirecTV, and I think there's no
greater opportunity for News Corp, Fox and Hughes shareholders and
customers than this chance to make DirecTV the strongest
distribution platform in the world. Thank you.
G. Ginsberg Operator, we're now ready to take questions.
Coordinator Thank you. Please limit yourself to one question. Brendan Lions,
you may ask your question, and please state your company name.
B. Lyons Brendan Lyons from JB Wier. My question relates to the likely
earnings dilution from the transaction for News Corp in the first
full year, which will be 2005 on these expectations. It looks
to us that it will be EPS dilutive by 10% to 15% in the full year,
and the synergies required to meet an EPS-neutral outcome is
about $300 million US at the EBIT line for News Corp. I'm just
wondering if you can indicate whether you're comfortable with
those sort of synergy forecasts, and provide some color perhaps
on where do you expect to get those savings or benefits to News Corp?
D. DeVoe Yes, as I think I said last night to you, we're comfortable with what
we said last night: that for the first full year of operations,
fiscal '05, that the dilution to both News Corp and Fox would be
marginally dilutive to slightly accretive. You can work the math
out, so we are comfortable with those types of savings. Chase, do
you want to talk about briefly some of the things that we might be
doing with respect to Hughes?
C. Carey Operationally in the business?
D. Devoe Yes.
C. Carey I think as you look at the business, clearly there are going to be a
number of initiatives right out of the box. There are initiatives
we'll put in place in really across the board: cost areas that should
dramatically improve the margins in this business. If you look
competitively where their margins are today versus Charlie, I think
it speaks to the opportunity here, or even versus the operating profit
margins that exist in the cable industry, I think those are the types
of margins. I think those types of initiatives will apply to the
programming, to overhead, to marketing, toSAC, to churn. When you
look at the benefit of just say taking churn down one percent, it's
a huge benefit. Today their churn is probably ten points higher
than the churn we have in Britain. So I think there's real upside
in terms of the operating initiatives, and certainly growth as we
go forward in the business. They're bringing on new local to local
markets. Those will drive growth. They're, I think, really starting
to get on top of the multi-TV set demand. That will drive growth.
Technological innovations, particularly PVRs, will be the big part of
bringing a new dimension of growth to this business. I think within
the DirecTV business there are a lot of things that will be done to
drive, again, both the top line, and probably more importantly the
bottom line.
Beyond that there are some very big things that will be dramatic
immediate improvements, I guess probably the biggest of those
being Latin America, which has clearly been a drain on this company.
They're in Chapter 11 now. Obviously we have a Latin American
business there, and we'll look for ways to rationalize those
businesses in a way that makes sense for everybody. I think that
should be a structural change that is a very quick, very immediate
and very dramatic improvement to the bottom line. And there are
obviously other issues that have been out there that need to be
addressed. The Pegasus situation they have clearly is not
something that works in the marketplace. A solution to that
requires all parties to be realistic about the fair and appropriate
way to readdress that. But I think those are all opportunities
that really can be very short-term, very immediate and very dramatic
opportunities to drive and improve this business.
R. Murdoch I'd just like to add to what Chase said. I expect that by the time
this deal is concluded, hopefully at the end of this calendar year,
the subscriber count at DirecTV will be comfortably in excess of 12
million, and you can certainly hold me to that. Additionally, as
we're just seeing at Sky in Britain, as we get into new services,
and this perhaps is not so immediate, but as we get into new services
and new offerings there will be opportunities to increase ARPU without
any price rises.
Thirdly, what Chase said is right about churn. I don't know how
much we can bring it down. I think as they are making certain
moves at the moment they're already bringing churn down from the
low 20's to the mid to high teens. In Britain we have it down to
ten. That may be too much to ask for in this country, but every
point that you save in churn now saves about $70 million a year.
Finally, I'd just say in Latin America, to be a little more
specific, we've been investing in our partnership there, which
now has about 1.6 million homes and about equal to theirs,
although in different strengths in different countries. We've been
putting in the best part of $100 million a year, which has been
coming out of our bottom line, and they have been injecting about
$500 million cash a year to their 1.6 million and not growing.
Now I can't tell you how this will be done or how fast, it'll be
pretty fast, but both those minus figures will disappear. So
there's a big rationalization to occur, which will help both
News and Hughes and all the shareholders of both.
B. Lyons Can I just ask one follow-up question in regard to Hughes
Network Systems, which didn't get a lot of time on the first
conference call? Are you committed to the rest of the cap ex
for the Spaceway project? That business seems to be
losing in cash terms about $500 million US a year, and you
have a couple more years of that program to run out.
R. Murdoch From memory, I think it's due to have the Spaceway program all
launched during 2004, and they have it planned to be in profit
pretty much straightaway. We will certainly be making a very
close examination of that to see how practical it is and whether
this is the beginning of a great new business or more just an
engineer's dream. My worry about providing broadband to the public
as a whole, which we will certainly do in some form, is that there
are new technologies being talked about and being invented every
month or two, and I think the provision of broadband will become
pretty much a commodity with a lot of competing players in it,
and it's now something that we have to do. We will do it only if
there's no other way to get broadband to people in rural areas,
but it's increasingly looking like there will be many options.
I'd just say we're going to approach it with a lot of admiration
for the work that's gone into it and for that very ambitious dream
that it is, but we have to take a very close look at that before
committing ourselves.
C. Carey In terms of the cap ex, Spaceway will this calendar year be
essentially complete, so they are on the tail end of the
Spaceway cap ex process.
R. Murdoch It will be done before we get there, as to at least 90%. Is
that right, Chase?
C. Carey Yes.
B. Lyons Thank you very much.
Coordinator Kathy Steponius, you may ask your question.
K. Steponius Hi. Thanks. Last night on the conference call, Rupert, I
believe you said that you expect DirecTV to continue to add
a million subscribers per year for the foreseeable future,
and you basically just reiterated that this morning. In
light of the fact that AT&T bled 500,000 subscribers last
year and that Comcast is no more focused on stemming those
losses, won't adding a million subs per year be a lot more
difficult going forward, especially given cable's position
with the bundle? If it turns out that the bundle is important
in keeping subscribers, of not getting them back from
satellite, what's your willingness to compete on price on
the video product?
R. Murdoch We want to be competitive on price. We're not, certainly, planning
any price wars. We're not a great believer in the bundling. Some
people like it, and a lot of other people prefer to get their bills
one by one. I don't like it in that I think if you give people a
bundle and it comes in at over $100.00 a month and they think they
have to cut back for some reason, they're more likely to cut out one
premium video service than they are telephony or whatever. So we're
quite happy to keep it separate. I think our offering will be so
rich and so strong as a video that people will be very happy to have
it. They may take DSL, they may take cable, they may take Wi-Fi.
They may be looking at new technologies. Another one talked about in
the New York Times this morning was Chairman Powell was being
demonstrated to yesterday. We just don't think that's a problem at all.
As for the million, the fact is it's just going on and on. Charlie is
going up a million a year, and Direct is. I think when we improve
Direct and market it very aggressively, and particularly put tremendous
effort into customer service, we'll get less churn and faster growth.
All the research I've seen shows the continuing increase in share of
multi-channel market going to DBS. Certainly the idea of another two
million growth this year over last year seems to be accepted by the
researchers, and another two million next year, then they're saying it
might come down to one and a half. At the same time they're predicting
slow growth in cable. Cable's growth will come, I think, in revenues
and other services. But we have to see and build technical capacity
into the satellite service so that we can get the same revenue growth
as well as the subscriber growth.
C. Carey I'd just add to that. I do think when you look at growth , there are
structural enhancements that are going to come to satellite. Local
to local, as we said, is going to be increasing; they're adding markets
right now. That has proven to be a dramatic area of growth and
improvement. And I think enhancements in areas like multi-set capability,
which has been another issue for the satellite industry, are coming
along. I think you're going to see new set-top boxes that are much
more efficient in terms of hooking up multiple sets. So I think
enhancements like that will fuel the growth of the cable industry,
and then certainly will bring to Direct specifically improvements
across the areas Rupert talked about, in terms of marketing, in terms
of customer service, in terms of how do you access content, how
do you add interactivity. I think all those features are going to
be enhancements that should enable us to more than maintain and
build on the growth that exists today in the satellite business.
K. Steponius Thank you.
Coordinator Oliver Anstead, you may ask your question.
O. Anstead I'm just stepping back to the question about the source of the
accretion, I guess, longer-term. I'm just wondering if you could
maybe give a bit more detail on, for instance, if you break the
three major components down into churn/non-churn costs, so say
programming and administrative, and then maybe Latin America,
what's the rough split where you're going to get most of the earnings
or the expected earnings benefits?
D. DeVoe I don't think that we're prepared to quantify any more than we just
did the various areas of churn, other than to reiterate, I think as
Chase went through in some detail, where we think the areas are
going to come from. Do you want to reiterate any of it, Chase,
at all, because it's ballpark...?
C. Carey I think Rupert gave you a sense of Latin American issues,
and again, I think there are abilities and opportunities
to turn that business essentially into a profitable
business, a profitable situation. So I think he gave
you a sense of...
R. Murdoch Even on a breakeven I'm saying there's a saving of $600 million a
year to be made there immediately. There are contractual situations
there and everything. It may take us a couple of years to get there.
D. DeVoe And just to add, it doesn't take necessarily the synergies that we
bring to the business in the savings. Hughes on its own has
improved its business substantially from when we last looked at
it. So the business in its own right, even before we've put the
savings on it that we expectto achieve, is going to generate
pretty significant earnings as we look out into our first fiscal year.
C. Carey The bottom line is we can really drive the bottom line. As Rupert
said, a point in churn is $75 million, a point in margin is $75
million.As we address those areas, there are very dramatic opportunities.
O. Anstead If you look at the Hughes guidance for '03, they're guiding for
EBITDA of about $1.1 billion. So if you look out to their calendar
'05, can you take a stab at what sort of ...you'd be expecting out
there?
D DeVoe I don't think we'd put that type of number out there.
O. Anstead Okay. Thank you.
Coordinator David Gibson, you may ask your question.
D. Gibson Mr. Murdoch, I just want to clarify what your attitude
is to the issue of the preferreds. Do you view them
as cost of capital? What sort of cost do you think
they have, because I think probably investors are a
little bit concerned with the dilution that is
immediately occurring?
R. Murdoch Well, I think they're very under prices, if that's what you mean.
They are our basic currency. We have a lot more, you call them
preferreds in Australia, but they're okay. They're basically the
main stock in News Corp and non-voting, and there's a great deal
more of them and much bigger float than there is in the voting, so
we use them as currency. But if you take that as our basic measure
and put us against our peers in the media industry, they're at a very
considerable discount. Dave could... And they're... certainly to a
Viacom, but I think even to a Disney or an AOL.
D. DeVoe What we tried to do with the transaction is to structure
the transaction so that it would have the minimum amount
of dilution. We did that by trying to balance the maximum
amount of both the cash that we could use to make this
acquisition and the amount of equity required to balance
that against to insure that we would, number one, maintain
our credit rating, and then number two, insure that we
continue to be strong financially.
R. Murdoch I'd like to congratulate Dave. I think the way he
structured this has been quite brilliant. We've been
husbanding our cash resources and making a very
careful opportunity... which is thus far the biggest.
But we expect at the end of this month, for instance,
to be completing...which is really, I don't think I
need be frightened of using the word a monopoly, because
even the European commissioners use that in sanctioning
it. But we will be the only carrier of multi-channel
television. There will be no cable of any size, no
other platform for a very long time. That I think we're
paying about $900 million for at the end of this month.
We will still finish the year something just a fraction
under $4 billion. Is that correct, Dave?
D. DeVoe Yes. Correct.
R. Murdoch Is cash reserves. That's without the sale of the
Dodgers, without calling on the $500 million from
Liberty. So you can say well we've got well over
$5 billion in fact there. We're putting 3.1 into this.
And then of course we are expecting strong cash flows
from all our operations to continue. They've been very
good this year, and we expect them to continue through
next year. So Dave and his conservative ways say we
will never, under our current plans, fall below a
million dollars cash in the bank, and I think it'll be
considerably better than that.
De DeVoe What we did, we did try to preserve our flexibility with respect to
the amount of equity that we have to issue. We do have the ability,
if we chose to, to put more cash into the deal and less stock. We've
tried to balance this, and we'll have to see at closing, we're not
promising that we're going to issue fewer shares, but we'll
have to see what the outlook is for our business, what the outlook is
for the economy, and we'll evaluate it at close.
D. Gibson Just a follow-up on that. In terms of the preferreds, Mr. Murdoch,
should we consider ongoing the preferreds are your transaction currency,
that further issues are possible, and in that regard, given your
comment that they are under priced, and we would probably concur with
that, what steps you would take in the future to insure that the
underpricing in not maintained, and in particular that they don't trade
at... discount...?
R. Murdoch Well I think we would have to be very careful and very cautious
about issuing any equity at all, but we're not going to go
back either to increase our borrowings. So we would only ever
make anything that's possibly dilutive in issuing stock if we
saw medium-term accretion and saw it being really essential to
the overall building of shareholder value. We're about accretion
and value, not dilution, but we are prepared to take a medium-term
view of it rather than a quarter-to-quarter view.
D. Gibson And in terms of reducing the discount that the preferreds trade at
compared to the ordinary stock and the overall price discount of the
company, as you said?
R. Murdoch We have some ideas about that, but we're not ready to discuss them
yet. I think it's pretty ridiculous. People seem in this country
to be extremely happy buying the preferreds. In Australia they all
want to buy the voters.
G. Ginsberg Next question, operator.
Coordinator John Tinker, you may ask your question.
J. Tinker Hi. Could you just give us a little more specific guidance
as to how fast you'll be able to execute on some of these
changes in terms of when the deals go to close and at what
point can you really get involved?
R. Murdoch We hope we can keep very strong cordial relations with them.
I think that they'll be very cooperative and listen to our
ideas, but we have no power at all to change anything until
the deal closes and passes all the regulators that are here
in Washington. Some of us have hopes it will be faster,
but I think realistically we should think about getting in
there in January of next year. You'll see the beginnings
of the effects of what we're doing, or planning to do, really
in the full year of '05.
C. Carey I would just add: I do think we're on the same page with them about
a number.I mean, take Latin America. I think they are focused on the
same issues we are and would work, certainly, even immediately, to
determine what is the appropriate solution to a situation like that.
I think they'll also be receptive to starting to work, so we hit the
ground running in January '04, towards the types of things we can
bring to bear, look at some of the things we've done in a place like
BSkyB, get up to speed on the type of interactive services we've
introduced there. And we can obviously do planning so we're not
starting in '04; we're hitting the ground running. So I think there
are clearly things that can be addressed in '03 as we're getting up
to speed with them that are issues we'll work with them to address,
and really will hit the ground running in '04.
R. Murdoch I think I agree with Chase, that it's possible we can cure
the Latin American problem even before the deal closes.
J. Tinker On that note, do you have any plans for PanAmSat?
R. Murdoch Just to develop it to its full potential. We have no plans,
certainly, to sell it.
J. Tinker Thanks.
Coordinator John Redin, you may ask your question.
J. Redin Could you help me with this? GMH has been for sale for the better
part of three years, there were only two bidders, one of which was
knocked out by the regulatory authorities. GM is a forced seller,
and the property is a fixer-upper. Under those circumstances why
would there be any premium paid?
R. Murdoch Good question. They were asking for a lot more money, and they had
quite a strong lobby in their own company to keep it, people who are
very attached to it. They also had people in Hughes who would have
liked to have seen it spun off quite independently, leaving the status
quo. I think they had to realize that in this market that last option
was not open to them.
J. Redin So why didn't you call their bluff?
R. Murdoch Capital market. But on the other hand, they've quite
simply refused to take a lower place. They were asking
a much higher price and we were offering a lower one, but
we met at this price.
J. Redin I think you should have called their bluff.
R. Murdoch We thought we did.
J. Redin If you walked away their stock would have went to between $6.00
and $8.00, the current management is not well regarded. They
would have stewed in their own juices. If you showed a little more
patience... You said you consider the...
R. Murdoch That's quite after the event, and I don't concede that all. The
stock may have well gone back to $10.00, but not six or eight.
C. Carey And I would challenge the fixer-upper categorization of the
business. There clearly is real... this is the market leader.
It's got the best brand in the business, it's got unique
programming in the business, it's got distribution assets.
D. DeVoe The highest ARPU.
C. Carey It's got a $10.00 higher ARPU. If we can take the margins to where
Charlie has got the margins, it's the better part of a... billion
dollar difference there.
R. Murdoch I don't want to embarrass anybody in this, but you must
understand that the day to day management, the operational
management of Direct, and of Hughes as a whole for that
matter, changed completely and for the better about three
months before they closed the deal with Charlie. That was
very much as a result of some of the things that we did and
they did in those negotiations. But the management before
that for three or four years I would concede was pretty
disastrous.
D. DeVoe Yes, and I would say this too. This is a totally different
business than we had before, I totally agree, so this is not
a broken company like it may have been perceived a few years
ago. I think the price that we negotiated is a full price
for what we would have paid for the business, but given what
we can do with the business and based on our expectations
for the business it is not an unreasonable price for us to
pay.
Just to add one further thing, we spent three years waiting for this.
The idea that we would, to try to get the last dollar out of this,
walk away and spend another year and a half was not something I think
that I certainly would have supported from my position.
Coordinator Jeff Logston, you may ask your question.
J. Logston Thank you. Could you guys just go over the control and governance
issues, because you talk about this as if you're in total control of
it while owning 34%? Are they ceding that to you operationally, and
what could happen in that ownership structure going forward?
R. Murdoch The only thing that could happen would be that the six
independent directors could all take a set against us and
give us a lot of trouble and we'd have to go to the
shareholders for a vote to remove some of them, but we don't
expect that at all. In fact, we have five, and the sixth
one to be named yet, but of the five that are named, four
of them are all very respectable, independent people and
will do what they think is right for all the shareholders.
They are all certainly long-term friends and acquaintances
of everybody in News Corp.
J. Logston And relative to running this company, that's going to be in
the hands of News Corp and Fox?
R. Murdoch Absolutely.
D. DeVoe I also think that in terms of running the company, it's going
to be run by best practices, and it's not going to be led by
control of anything, it's going to be led by leadership that
Chase and the executive team will bring to it. So I think
that we're not concerned about issues of formal control.
We think that the shareholders and the board of directors
will welcome the expertise and the leadership that Chase
and the existing DirecTV management bring to this.
J. Logston Let's hope so. It's great. Glad you guys did this.
Coordinator Eric Lee, you may ask your question.
E. Lee Hi. Just a quick question in terms of in the context of
subscriber growth and competition, and you referred to it
I think briefly before, but in terms of the NRTC situation
with DirecTV, they've been kind of losing subscribers over
the past several quarters. I just wanted to get your sense
of any plans you might have going forward to potentially work
with them to reinvigorate that subscriber growth, because I
think it is somewhat of an overhang with the DirecTV platform.
Thanks.
C. Carey I think it's pretty clear that the structure of that relationship
doesn't work today. I think it's clear in what you see, the
performance from the Pegasus NRTC side, and I think it's something
that should be addressed. I assume all parties would agree it's
something that should be addressed. It requires reasonable parties
to find an appropriate and fair solution, and I would assume all
parties would like to find that. I can't imagine they'd want to
perpetuate something that clearly doesn't work, so it is something
we'll certainly be aggressive about.
E. Lee So I guess from your comments then it's fair to say at least
there certainly is continued strategic value in your eyes to
those territories?
R. Murdoch Absolutely.
C. Carey They are certainly important territories. Again, I think there
should be a fair solution for everybody that makes sense. It
requires parties to be reasonable, but it is an area that needs
to be and should be addressed. Clearly it's a problem for them.
It's their entire business, and it's stuck in a mode of decline
right now. It's 8 million homes out of the 100 million plus in
the United States, and it's an important part of that, that we
will clearly aggressively deal with.
Coordinator Mark Mah, you may ask your question.
M. Mah My question was just asked. Thank you.
Coordinator Robert Routh, you may ask your question, and please state your
company.
R. Routh Robert Routh from Arnhold. A few questions. First, given News
Corp's relationship with Liberty and Liberty's decision recently
to roll in its Liberty Satellite and Technologies, which not only
holds some GMH stock but some XMSR as well as Astrolink and some
other things, it seems that it would make a lot of sense with what
you guys planned on doing. I'm wondering if long-term you see any
potential opportunities for you and Liberty to participate in the
DBS venture in more than just an investment in News Corp level?
Second, I'm wondering if you could comment on whether or not you
may have any interest going forward in Pegasus or PGTV given it's
relationship with DirecTV? And finally, whether you would have
any interest in Chuck Dolan's Rainbow DBS orbital positions and
satellite, especially given your focus on regional programming in
the satellite specialty as far as local to local and the delivery
of HDTV signals?
R. Murdoch I think the answer is that probably no as far as Astrolink. We'll
see. I think it's something that's taken a long time to get going.
It was also something which we had a little investment in. I think
Charlie and Malone have upped their position in...is it Wild Blue?
D DeVoe Yes.
C. Carey Charlie hasn't. Liberty and the NRTC have. But I think Charlie has
declined for this year.
R. Murdoch Declined, did he? I would be inclined to follow his judgement on a
matter like that.
Pegasus I think we've addressed. It is a problem that has to be
cured. How will we do it? I don't know, but so far that it is
not working profitably and satisfactorily to either party, it is
something that's holding back what would be faster growth of Direct.
Your third question I've forgotten, I'm sorry.
R. Routh Whether or not you may have any interest, in the event Chuck Dolan
was interested in partnering?
R. Murdoch No. That satellite that Chuck has designed the experts
tell me is a very good one, but it only covers
geographically satisfactorily about half of the country,
perhaps 70% of the population, but he's only got 11 spots
on it, and Charlie... is not about to give up the other ones.
Charlie might buy it from him for a good price, but it comes
back to this question of two dishes, you'd have to buy two
dishes. We don't like that. We think that's an imposition
on people. And as long as possible, we're not saying forever,
as long as possible we're going to try to do everything from
our Konus positions. We not only have the 46 frequencies,
I've forgotten the number, of the KU band Konus frequencies
that are available, we also have very considerable KA band
frequencies that are not yet being used.
R. Routh Great. Thank you very much.
G. Ginsberg Operator, we have time for one last question.
Coordinator Thank you. Frank DePitrio, you may ask your question.
F. DePitrio My question has to do with the mandatory exchange of the
Hughes common stock and the split off. Hughes
shareholders are going to receive the equivalent of
about $14.00 a share in cash and/or stock. Is there any
estimate as to what percentage of that $14.00 to Hughes
shareholders will be in cash and what percentage of that
$14.00 will be in stock?
D DeVoe No. The transaction is required for the Hughes shareholders,
other than General Motors, will receive stock.
F. DePitrio Are you saying that the Hughes shareholders will not
receive cash?
D. DeVoe Right.
R. Murdoch Well, it's unlikely. We have the option to pay them cash if we
have a surplus of it or find it's cheaper, but we would anticipate
that that's a purely stock transaction.
F. DePitrio So then when we convert our shares, that 17.5% that will
be coming, what kind of stock will the Hughes shareholders
get?
R. Murdoch News preferred ADRs.
F. DePitrio Thank you.
G. Ginsberg Thank you very much, everyone, for joining us. If you have any
additional questions, Reed Nolte, myself, and Craig Felenstein
in New York would be happy to answer them. Thanks a lot for
joining us.
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