News Corp's efforts to take control of DirecTV have been bouyed with the departure of Hughes Electronics Chairman Michael Smith. But the deal could still be derailed by rival suitor EchoStar.
Smith was a strong critic of an earlier bid by Rupert Murdoch to take control of DirecTV, the top US satellite broadcaster.
But News Corp still faces the threat of a competing bid by second-ranked US satellite broadcaster EchoStar Communications, which could be announced as early as this week.
Sources familiar with the matter say News Corp is still conducting "due diligence" reviews of Hughes, a unit of General Motors, and a deal is still weeks away.
News Corp, which owns the Fox television network, film studios cable stations and a number of newspapers, has long wanted a US component to its Sky Global network of satellite services that stretch from Asia to Europe to Latin America.
Smith was a controversial figure in the talks between News Corp and Hughes, sometimes being portrayed as an individual who did not want to relinquish control over his company and other times as a staunch defender of Hughes shareholders who ultimately got Murdoch to sweeten his offer.
"I think Hughes is getting close to a deal," said ABN Amro analyst David Kestenbaum. "Smith was a roadblock for Hughes, but at the same time he extracted a lot of value for shareholders by building a lot of resistance to the original News Corp offer. But this paves the way for a deal."
One source familiar with the matter said that EchoStar, which completed the sale last week of US$1 billion of convertible notes and has US$1.3 billion in cash on its balance sheet, is expected to announce a bid this week. EchoStar executives declined to comment. Other observers say Smith's resignation should have little impact on potential deals. "Whichever way the negotiations went, he was destined to retire anyway," said SG Cowen analyst Rob Kaimowitz.
Smith, for his part, said in a statement, "I have spent the last several years focused on transforming Hughes from an aerospace and defense company into a pure-play entertainment and broadband communications company. We've accomplished that and ... now I believe it is time to move on."
The incoming chairman Harry Pearce, former vice chairman of GM, declined to comment specifically on any talks except to reiterate that the company was in formal talks with News Corp to merge DirecTV with Sky Global, but that the company had a fiduciary duty to evaluate all "serious" offers.
GM said last year it was in discussions with a number of parties for a variety of alternatives for Hughes in an effort to generate cash. GM and News Corp were believed to be close to a deal in early March that would merge the DirecTV with Sky Global assets and then spin the combined entity as a publicly traded company.
Last week, EchoStar started raising cash to mount a competing bid, which some observers could yield more cost savings and operational benefits than a News Corp deal. Proponents of a News Corp deal say it creates a powerful global platform for entertainment and interactive services.
