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 CORPORATION
Moderator: Gary Ginsberg
April 9, 2003/5:30 p.m. CDT
NEWS CORPORATION
April 9, 2003
5:30 p.m. CDT
(Use of speaker-phone, overlapping voices, background noise
made transcription difficult.)
Coordinator Good evening, everyone, and thank you for holding.
I'd like to turn the call over to Mr. Gary Ginsberg,
Executive VP of Investor Relations and Corporate
Communications. Sir, you may begin.
G. Ginsberg Thank you. Good evening, or good morning for those
of you in Australia, and thanks for joining us on
such short notice. I hope everyone by now has had
a chance to read our press release, announcing News
Corporation's acquisition of a 34% interest in Hughes
Electronics. For those of you who haven't, it's
accessible via our Internet site.
Today, we'd like to briefly summarize the terms of the deal
we just announced, explain the rationale behind it, 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 COO; Lauchlan
Murdoch, Deputy COO; Dave DeVoe, CFO; and Chase Carey,
who upon completion of this transaction, will become
President and CEO of Hughes Electronics.
Before I turn the call over to Rupert and then to Chase for
their brief remarks, let me first say that today's call is, of
course, governed by the Safe Harbor Provisions, and in
addition, 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 it
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, www.sec.gov. Investors will
also receive information on 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, and
thank you. Sorry to keep you waiting. As Gary said, we're
here to announce an extremely exciting event for News
Corporation, the Fox Entertainment Group, and Hughes
Electronics.
Today, after three years of patient negotiation, occasional
frustration, but now great satisfaction, we've reached
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's truly exceptional to be able to create a
win/win/win scenario as promising and powerful as the
agreement we announced today. For the shareholders and
customers of News Corporation, Fox, and GMH, today marks
the start of a bright future.
Let me just briefly summarize the highlights of the definitive
deal that we reached today, which is outlined in the handouts
that you've received. Under our agreement, News
Corporation will acquire GM's 19.9% stake in Hughes at a
price of $3.8 billion, or $14 a share 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% of Hughes
from public shareholders and GM's pension and other benefit
plans at a price of $14. share, which we'll be using 122.2
million News Corp. preferred ADRs, using as a base ADR
price of $22.40. All these figures, I should say, of course,
are U.S. dollars.
Upon closing of the transaction, News Corporation's 34%
ownership interest in Hughes will be transferred to the Fox
Entertainment Group, our 80.6%-owned subsidiary in
exchange for 74.2 million shares in Fox at $27.99 per share, as
well as two notes for a total of $4.5 billion. This agreement is
subject to regulatory approvals, but we expect the transaction
to close by the end of calendar 2003.
At that point, I will become Chairman of Hughes. Chase
Carey will become the Company Chief Executive Officer, and
Eddy Hartenstein, currently the Chief Executive of DIRECTV,
will be a Vice Chairman of the board. The board will consist
of 11 members, including myself, Mr. Carey, Mr. Hartenstein,
Mr. Chernin, the President and CEO of News Corp. and CEO
of Fox, Dave DeVoe, the Chief Financial Officer of News
Corp. 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, and 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 that
structure.
Second of all, the company's position within Fox will
facilitate the 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 have 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 assisted distribution
platform, the definite advantage we do not plan to abuse. As
stronger players, we plan to be in the multi-channel television
industry. We have every intention of being a fair player as
well. Both News Corporation and DIRECTV have committed
to be bound by FCC program access regulations and of 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 thrive 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 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 must tell you that Hughes' management has done
a magnificent job running their business and controlling costs
in their uncertain circumstances of the past two or three years.
Over the next few years, we plan to take the value of this 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. 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 to invigorate the multi-channel
industry and help make satellite TV a viable competitor to
cable, more programming options, greater efficiencies, richer
content, better customer service, and compelling new
technologies will give satellite television its first 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 President and Chief Executive
Officer of GMH. Now, I will be very happy to pass it over to
Chase, to give you a better sense of some of the strategies and
improvements that we've planned. Thank you very much.
C. Carey Thank you, Rupert. Before I get into our plans for Hughes, I
want to emphasize something Rupert mentioned earlier, and
that's the truly impressive job the management of Hughes has
done over the past few years. It's not easy running a company
under any circumstances, and it's a lot harder when the future
of the company is in flux. We're highly supportive of this
management and we want them to be as successful as possible.
As we look at Hughes, and the cornerstone of Hughes, of
course, is DIRECTV, which has successfully established itself
as the market leader in U.S. satellite television. Today, it is
second only to Comcast in the number of multi-channel
subscription homes it reaches in the U.S. DIRECTV has
created a fabulous brand and unique strength in key areas, like
customer service, programming, and distribution. DIRECTV
has also taken a number of steps in the past year to further
strengthen its business by addressing its issues, like cost
reduction. Our goal will be to bring the expertise of News
Corp. to bear as we enhance and expand on DIRECTV's
plans. We have a proven track record in building businesses,
like the Fox Network and Fox News, as well as first hand
experience in creating and operating successful satellite
distribution platforms, businesses like BSkyB, which is
considered the premiere satellite television platform in the
world.
That expertise will be employed across the board at
DIRECTV. In the cost area as DIRECTV's management has
acknowledged, there's considerable work still to do. We plan
to enhance those managers' efforts, by attacking cost from
programming to marketing, churn, set-top box costs, and other
areas. We'll also work with DIRECTV management on a plan
to maximize the platform's growth potential. DIRECTV
already provides a great consumer experience and we plan to
make it even better. Initiatives in areas like customer service,
marketing, onscreen 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 high-definition, personal video recorders, and
interactivity become market realities, we're confident that
DIRECTV will build on its leading ability to bring the most
advanced experience and most rewarding experience to
consumers.
While DIRECTV is the cornerstone, we also must focus on
key issues across the rest of Hughes. HNS, already the
worldwide leader in the enterprise business, has the
opportunity to take that business to a higher level with the
launch of Spaceway, a satellite system that requires an entirely
new generation of 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 in these and other
issues in a decisive, expeditious, yet thoughtful manner. One
of the greatest strengths we'll bring to the 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 is clearly and understandably been handicapped in
executing such plans by their For Sale status over the past few
years. 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's growth improvements from here.
We look forward to meeting all these challenges. We bring to
this opportunity, the talent, the experience, and I say the
excitement that we've 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 New Corp., Fox, and Hughes' shareholders
and customers, than this chance to make DIRECTV the
strongest distribution platform in the world.
G. Ginsberg Operator, we will now be ready to take questions. I'd ask that
you'd please limit it to one question on the call, so we can get
through as many questions as possible.
Coordinator First question comes from Brendon Lyons. Sir, your line is
open.
B. Lyons Yes, Brendon Lyons from J.B. Weir. Just based on the
announcement, it looks like the number of DPs you'll be
issuing to GMH seems set, but in terms of the number DPs
that will be issued to other Hughes shareholders, can you
clarify that number and whether you will offer them any cash
at all?
D. DeVoe No, Brendon, what the deal is, is that we are giving GM
roughly $3 billion in cash, and we're issuing a total of 156.5
million ADRs, of which GM is getting 34.3 million shares.
The amount of shares we issued is a 20% collar and at $22.40,
which is the center of the collar, the exchange ratio is 0.625
News Corp. shares. That exchange ratio can vary, dependent
on News Corp.'s stock price. It can go as high as 0.781 to as
low as 0.521.
B. Lyons Can I ask a quick second question? Are you prepared to put a
number on the synergies you expect from this deal at this early
stage or, perhaps, give some idea of what you expect the EPS
impact will be in the first full year, both pre and post those
synergies.
D. DeVoe What we expect, and this is really in fiscal 2005, which is
really the first full year that we will operate and own the
company, we're expecting the transaction to close sometime in
either late 2003, early 2004. We would expect for both News
Corporation and Fox, in the first full year that we operate it,
for the transaction to be marginally dilutive or slightly
accretive, to both Fox and to News Corporation. As we get
into 2006, the transaction becomes accretive to both
companies.
B. Lyon That would be dilutive, perhaps before synergies and accretive
after synergies. Is that right?
D. DeVoe It's hard to say what it is, but our numbers and our estimates,
obviously, are based on the way that we will operate the
business after we acquire it.
Coordinator The next question comes from Anthony Noto. Sir, your line is
open.
A. Noto Thank you very much. I'm sort of dovetailing off on the last
question. As you think about the impact on dilution and
accretion in the first full year, how should we think about the
PanAmSat business and whether there's any strategic
opportunity to sell that to a strategic group. Then as you think
about the churn rates currently at DIRECTV and in Latin
America, what opportunity have you quantified there, based
on your experience in endeavors similar to this? Thanks.
C. Chase PanAmSat at this point, our plans are to operate that business
and drive it to its full potential. We recognize there are parties
that have talked about it, but at this point in time, our plan is to
continue to own that business and operate it.
In terms of churn, it's an important area. DIRECTV, actually,
in the last quarter, they report it did achieve some reduction in
the churn, but it's clearly an area we'll focus on. When you
look at the level we've driven churn down to in the U.K.,
where we're under 10%, I think it speaks to the potential we
think we bring to improve the churn numbers here. I know
DIRECTV is focused on it, but we do think we'll bring a level
of expertise and insight that will enable us to make real
headway on the churn issues in the U.S.
The Latin American business is probably a larger question.
DIRECT Latin American business is in Chapter 11 at this
point, so there are probably larger issues about where that
business goes, than the churn. Currently, they have to work
through and we have to work through with them the Chapter
11 process, but clearly, Latin America is a market that is
challenging. The economies down there are challenging and
we certainly are committed to and believe we can find a path
to make the Latin American business one that makes sense for
all parties here.
Coordinator The next question comes from George Coleman. Your line is
open.
G. Coleman Good evening. Could you give any indication, as to how the
structure of the coupon on the promissory note between News and Fox
will be set?
D. DeVoe There are two components of the loan. There is a $2.5 billion
term loan, which would bear interest at News Corporation's
cost of funds that cross over long-term debt, which is about
8%. There will a $2 billion revolver, which will be set, based
on News Corporation's borrowing rate under our revolver,
which is LIBOR plus one. If you factored it today, looking at
today's rates, that rate is about 2.3%. An effective rate on the
$4.5 billion is slightly more than 5% initially.
Coordinator The next question comes from Oliver Ansted. Your line is
open.
O. Ansted Just a quick question on the structure of the deal, the 14% that
you're proposing to buy from the public shareholders, what
were the main rationale for that? Was that mainly to get the
economic interest to a higher level from just the 20% GMH?
(Background noise, can't hear speaker.)
R. Murdoch There's considerable governance...
O. Ansted I beg your pardon. I didn't catch that.
R. Murdoch It's a legal answer really, but there are governance benefits in
having more than a third.
(Background noise.)
O. Ansted Just a quick second question, the... promissory note that's
going to be issued, does that affect the debt rating for News
Corp. in any way?
R. Murdoch No, both Moody's and S&P have given us the all clear for
both Fox and News.
D. DeVoe Yes, they both confirmed their ratings.
R. Murdoch They're... but they confirmed their current ratings.
O. Ansted In terms of the cash requirements or the operating status for
DIRECTV, is that going to require any additional funding
arrangement to be put in place for the first few years?
(Overlapping voices)
R. Murdoch No, we already have more than that now in cash. We'll be
using... and cash resources.
D. DeVoe I think your question was is DIRECTV or Hughes going to be
looking to News for any further funding. Was that your
question?
O. Ansted Sort of, yes.
(Overlapping voices)
C. Chase The answer is no. The Hughes business has a fully funded
business plan. They've got their own resources. They've got
their own agreements...
O. Ansted Despite the growth intentions for the business, is it pretty
much fully funded on an operating basis?
(Background noise.)
D. DeVoe It is fully funded now... due to cash break-even.
Coordinator Our next question comes from Jessica Reif-Cohen.
J. Reif-Cohen I got cut off for awhile, so I hope that nobody asked this; but
why is there no collar on Fox and there's a collar on News
Corp? So Fox is higher when the deal closes, potentially Fox
could wind up paying more for DIRECTTV than News Corp.
would, like happened with Chris-Craft? Do you have any
intention of selling back down to 80%?
D. DeVoe On the latter question, no. To the extent that we could have
done it with News, we would have preferred to issue and have
a fixed exchange ratio deal. We couldn't do that; it's not what
General Motors wanted. I think anytime you make an
acquisition of this size, what you like to do is, you want to be
certain that you understand what the purchase price is. But
with respect to Fox, we didn't think that it was right that Fox
should take the risk with respect to the fluctuation in News
Corp. share price. That's why it's done in the way it's done.
J. Reif-Cohen Does PanAmSat go into Fox, also?
D. DeVoe PanAmSat is in Hughes.
R. Murdoch Yes, in the whole of Hughes. The answer is yes.
J. Reif-Cohen I just have one other question that is completely different. It
sounds like you're going to put more functionality in the set-
top boxes, interactivity, PVR functionality. Can you just
discuss how aggressive you're going to be on the DTH or
DBS side, and how do you think it's going to affect your basic
broadcast operations?
R. Murdoch I didn't get the last part?
J. Reif-Cohen The question is, on PVR functionality, how aggressive will
you be on putting it into the set-top boxes for DIRECTV. At
the same time, how do you expect that to affect your broadcast
businesses, your Fox network and Fox stations?
P. Chernin This is Peter. I think, on the first question, I think we'll be as
aggressive as we think the marketplace calls for. We'll try
and offer the best technology and the best functionality and
see what the consumer demanded. I think to the degree it
affects the broadcast operation, it's going to affect it anyway.
So if PVRs come to affect broadcasting, we're certainly not
going to put our head in the sand with DIRECTV and say,
we're going to offer a weaker service because we want to
protect a different side of the business. The broadcasting
operation has to compete in the real world. We'll try and
build what we think is the best consumer service; and we'll try
and build such compelling broadcasting shows. PVRs are
going to be a fact of life in the broadcasting business, and
we're thinking a lot about what the implications of that are for
programming already.
C. Carey I think a lot of the technologic innovations will be timing. I
do think these are going to be real important and positive in
part of DIRECTV's business in its opportunity to really create
a unique consumer experience. I think we just have to be
intelligent about the marketing, and when is the market mature
enough to launch it in the right way.
J. Reif-Cohen You've said in the past that your goal would be to increase
ARPU. I didn't hear that on this call or on the previous call.
Is that still the plan, not to decrease pricing, but to try to move
up ARPU?
C. Carey Competitively, we're going to compete on the consumer
experience. We want to create a fabulous consumer
experience in terms of service, choice, quality of picture,
breadth of offerings, technological innovations, really make it
a great value. That is how we compete. Certainly, we'd like
to increase revenue. It's a competitive marketplace. We'll
have to see where the pricing is. As these opportunities and
new businesses emerge, and new technologies emerge, and
new forms of content emerge, I think we'd look for
opportunities to greet the markets there to pursue it. I think
we've been conservative on our planning expectations, but
certainly we'll be aggressive about developing opportunities to
grow it.
Coordinator Our next question comes from Peter Shorthouse. Your line is
open.
P. Shorthouse Good evening, a couple of questions on management as well,
are you able to have any management influence in the interim
before this deal closes, any opportunity to visit or look over in
more detail, what they're doing? If the answer is no, I guess
the risks relating to how Charlie Ergen might play his cards
for the next nine months. When you get in or when the deal
closes, if you can provide a bit more detail on the balance
sheet of Hughes, because there's no doubt, you're going to
need to spend money on set-top box upgrades, etc. I presume
you may not want to own the satellites they've got. But can
you give us an idea of how much cash you expect there's
going to be, and just to get more confidence that Hughes does
not need further external funding to cope with your plans?
(Overlapping voices, speakers hard to hear.)
R. Murdoch ...plenty... out of legacy boxes whatever, we'll certainly be
introducing new generations of boxes. Those people who
bought the early boxes, ten years ago or eight years ago, the
experience is that they come back for a new box and they put
the first box into the bedroom or somewhere else. Today, the
average buyer, for instance, buys two boxes. Three years ago,
it was one. So there's no need for us to go through and
upgrade all the boxes, certainly not to subsidize that, so that
we don't see any major expenditures there at all.
C. Carey I guess, on the first question, you asked in the interim period,
the rules are quite specific; and we can't manage the business
between signing and closing. We certainly can spend time
with the people there and get familiar with the business. The
management there has been competing aggressively with
Charlie. We will certainly have an opportunity to get up to
speed in an array of areas, discuss an array of areas, but
they're going to be managing the business. That is the way it
works.
Though clearly, we can start to formulate many plans, have
lead times to it, so we're quite comfortable with the
management and their ability to compete effectively in this
period, and us to effectively use this period to continue to
position ourselves to drive this business forward.
D. DeVoe In terms of their capital structure, they've got the better part of
a billion and a half dollars in cash, and they've got resources
of un-drawn on a revolver in excess of, I think, a billion, about
a billion and half; so they have plenty of resources to fund the
business.
C. Carey They really, capex-wise, don't really have other than ordinary
course. Spaceway was a big undertaking that's being
concluded, so they don't have capex beyond the ordinary sort
of course capex, as you look out forward.
P. Shorthouse Just to conclude, you expect to hit the ground running as soon
as the deal closes.
C. Carey Yes, for sure. We will very much be very aggressive in terms
of developing and preparing ourselves during this period.
Coordinator Our next question comes from Tony Wilson. Mr. Wilson,
your line is open.
T. Wilson Tony Wilson, UBS Warburg. The way the deal reads, you can
potentially fund this or purchase Hughes through cash only
and issue potentially no ADRs. What is the likely balance
between ADR issuance and cash, and what are the outcomes that
will determine what the balance will be?
D. DeVoe I think how we've announced it where the issue of $3 billion
of cash and $3.5 billion of stock, that's probably, unless
there's some other type of transaction which we're not
contemplating, that's the level of stock that we would issue
and the amount of cash and I think, probably the structure of
the transaction, both for Fox and News for minimum dilution
of all shareholders. In addition to that, be certain that we
didn't affect our credit ratings or our financial capacity. My
expectations would be exactly what the press release reads is
what we probably will issue.
(Hard to hear speaker)
R. Murdoch ...deal that when our cash balance is well in excess of a
billion dollars.
T. Wilson Doesn't it say in the press release that it's at your election?
(Overlapping voices)
R. Murdoch ...if we were going to turn around and pay cash for the whole
lot, we'd have to raise our money, buy equity issues, and we
don't intend to do that, unless the shares are up $50 or
something.
D. DeVoe Tony, does that answer your question?
T. Wilson Yes, it's just that it does say at your election, cash or ADRs.
D. DeVoe We do have the ability to do that and the decision would be
made at the time of closing. It will be somewhat dependant on
our operating performance, some other actions that we might
take. But I think the market should expect that the level of
equity that we're going to issue is as we disclosed it in the
press release, and it may change, if circumstances change.
Coordinator Our next question comes from Doug Mitchelson. Your line is
open.
D. Mitchelson Thank you. Doug Mitchelson from Deutsche Bank. Can you
give us a sense of what kind of subscriber growth you're
hoping for out of DIRECTV the next three to five years in
relation to the purchase price you pay? Also, can we expect
that Fox would have the opportunity at some point to
refinance the $2.5 billion term loan that's coming in at News
Corp.'s average cost of debt?
D. DeVoe I think with respect to that, it's going to be pretty difficult. I
think, if you look at it overall with respect to Fox, what we
tried to do again is try to optimize the capital structure of both
companies, which is why we tried to take as little equity as we
could for News, because obviously you could get a better
return on the equity. I think when you look at the effective
borrowing cost of $4.5 billion, it's pretty difficult to see how
you can refinance that, get that significantly cheaper than that.
Certainly, in the short run, the answer is probably not.
R. Murdoch That adds to the growth rate. I think you could say that they
gave a somewhat lower forecast this year. It will continue in
the foreseeable future, but that's three, four, or five years, to
grow by a million a year. If you get the churn rate down, I
think this year as they announce their quarterly numbers,
you'll see a very healthy growth rate.
Coordinator The next question comes from Alastair MacLeod. Your line is
open.
A. MacLeod Just a quick question on the bid prices. Did this end up being
a competitive process, or was it just News Corp. was the only
bidder?
R. Murdoch There were actually people trying to bid until a couple of
weeks ago, and then a lot of noise from another one last week,
which we didn't think was real. He meant it, but he couldn't
put it together. No, I think in the last few days, we were the
only ones left standing.
Coordinator The next question comes from Richard Greenfield. Your line
is open.
R. Greenfield Yes, a couple of questions, first, Rupert, you made the
comment that you would like to leave PanAmSat outstanding.
Could you discuss the logic or the process of which you'll
decide, whether or not to buy in the remaining 19% of SPOT
to have it all housed within News Corp., so you can better
leverage it? Two, could you discuss the opportunities to
leverage News Corp.'s global cable network programming
onto DIRECTV and how that may be a spark to subscriber
growth going forward? Then, just a housekeeping point, is
this going into associate companies? I assume you're going to
equity account for this, not consolidate it.
D. DeVoe Equity accounts for our 34% interest in Hughes.
R. Murdoch As for our proprietary channels in other parts of the world, the
answers are very limited, yes. Our big channels there in
Britain, for instance, are Sport. We have a minority interest
some other channels. We have our movie channels, but we
only have rights for the British Isles there. I don't know, we
have 40 channels in eight different languages in Asia. I can't
imagine them being a big deal here.
Although, I might take that back, there are, in fact, large Asian
minorities in this country, who will pay a premium for a
package of channels in their local languages; and that's
something actually that Charlie Ergen has done. I don't want
to be critical of Hughes, but they've seemed to let that
opportunity pass; and he's put together a large number of
packages, whether it be in Chinese or Indian or Russian,
particularly. I think he's got over half a million subscribers.
C. Carey Well over. It's a very profitable business for him.
(Overlapping voices)
R. Murdoch Pays very little for the channels and charges a lot.
R. Greenfield Then on SPOT, PanAmSat?
R. Murdoch We just want to carry it through and see if we believe it can
go. It's got potential to make more money and to grow; and at
this time, our intention is to keep it.
D. DeVoe We don't have any plans at this time to buy the minority.
Coordinator Our next question comes from Mike Gallant. Your line is
open.
M. Gallant Can you expand on what you meant by the governance
benefits of owning more than a third? Could you also
comment if there's going to be any lockup on News Corp.
shares that GM will get, and also if there are any regulatory
challenges, I guess, in the U.S. or Latin America that you
anticipate?
C. Carey I don't think there's a magic about the third. There were
rights that we got as a result of negotiation in buying a
significant shareholding from Hughes, and whether or not that
should have been 30% or 36% or 34%. As a result of
acquiring the 34%, we believe that we've acquired effective
control of the company; and that was a requirement for us to
go forward and to do the transaction.
With regard to the lockup on the stock that we've issued to
GM and the other shareholders, it's a traditional type lockup,
but there's no extended lockup period on the stock. I forgot
your third question.
M. Gallant On the regulatory side, U.S. and Latin America.
R. Murdoch No, we don't see any challenges with any legal merit. No
doubt, there will be a few professional people, who come from
the FCC, who object to every transaction, but we don't see
anything substantial.
C. Carey In Latin America, there are probably some regulatory things,
but they will not affect the closing of the parent transaction.
Coordinator Next question comes from Michael Mangan. Your line is
open.
M. Mangan Mike Mangan from Deutsche Bank. I came in late, so I might
have missed it, but I was just wondering what your plans are
for Latin America. I was just wondering if this transaction
included any shares in the GM pension fund, and what's likely
to happen with those shares, if it isn't included in this
transaction.
(Hard to hear speaker)
R. Murdoch Our offer... from the... GM shareholders, and that will
include the pension fund holdings.
C. Carey In terms of Latin America, clearly, it's a challenging place to
do business and the economies there have created challenges.
It's, I guess, exemplified by the fact that DIRECT is in
Chapter 11. We'll look at both businesses we have, business
they have, and determine for each, what is the way to build the
most successful business for all parties concerned.
M. Mangan There's been no decision about vending one into the other.
C. Carey No, at this point they'll operate at an arms length basis, but
we'll address them to choose a path that creates the greatest
value for everybody.
M. Mangan Presumably, the GM pension fund after this transaction will
still own shares in the company.
D. DeVoe Yes, about 20% of the company GM pension fund...
M. Mangan That will be after this transaction, or that is how much they
earn now.
D. DeVoe That's after the transaction.
Coordinator The next question comes from William Drewry.
W. Drewry Back to Rupert's comment of one million incremental
subscribers gained per year going forward, would that market
share come out of satellite or cable; and could you just talk
about where the focus is on market share gains going forward?
Just to be clear, with set-top box upgrades coming, probably
there still won't be a material step-up in the capex at Hughes;
is that right?
R. Murdoch First of all, there's no reason to believe that the growth will
stop. Both EchoStar and Hughes have been growing by
approximately a million a year for a number of years now; and
there's no sign of that slowing down. I think, maybe the last
months of last year there were, but there certainly haven't
been in recent months. Cable has been losing a smaller
number than that. We're confident with the growth, and with
what we can do to market and promote this that we can at the
very least, keep that rate of growth going for a number of
years.
As for the set-top boxes, yes and no, there may be generations
of boxes. There may be two levels of boxes. For instance, if
you have a PVR in it, we'll probably be charging a premium
for that. But your basis box with quite an amount of
interactivity in it, as we get into more and more mass
production, and maybe join forces with Sky and Sky... and
others, the prices are coming down all the time on boxes. We
can do a basic box now, it's called a Whirl box in Latin
America, I think the price is coming down towards $80 and it
was $150 a couple of years ago.
C. Carey I think if you look at sub-growth potential and I think it is
important to recognize, there are a number of initiatives that
are really bringing new growth to the market, local into local.
This year, DIRECTV is launching a whole set of local stations
in new markets. They're also getting on top of the multi-set
...issue in television homes; so if they tackle those and take
advantage of some of the enhancements, like interactivity they
can bring, we think there's real growth in the subscriber arena,
going forward.
Coordinator Our next question comes from David Miller.
D. Miller Dave Miller with Sanders Morris Harris. A few questions, I
was wondering if you guys could comment on the occupation
of just call it prominent real estate that's probably going to be
given to some Fox owned cable networks, Fox News, FX,
SPEED Vision, National Geographic. Do you guys plan on
putting that at the bottom of the DIRECTV band, channel
eight, 10, 20, etc.; and then I have a couple of other follow-
ups.
C. Carey No, we are not going to give preferential treatment in that
manner to Fox. We're going to treat all the players we deal
with fairly. It's really the only appropriate we can manage
DIRECTV to maximize its potential. Obviously, Fox will get
a port sister relationship. We look forward to ways to work
with Fox; but certainly, in dealing with programmers, we're
going to deal with them all fairly.
D. Miller You laugh, but it's happened before, especially with AOL
Time Warner and I'll cease my commentary there. The other
question I have is, how were you able to essentially negotiate
no change in Fitch or Moody's ratings by having a debt go
from, what I calculate to be, $2.3 billion to $6.8 billion, if you
add on the note?
D. DeVoe Are you referring to this at Fox or at News?
D. Miller This is just a purely Fox question.
D. DeVoe I think what we did is, we looked at the appropriate level of
Fox's capacity, and based upon Fox's outlook and cash flows,
that rating would certainly be appropriate.
D. Miller That is correct. The Fox portion to debt there will be $6.8
billion?
D. DeVoe No, no, not at all. It's $6.6 billion dollars purchase price, $2
billion is in equity, and $4.5 billion is debt at Fox. If Fox does
have some existing debt as of the end of the year, which brings
it to something north of $5+ billion, but Fox has also
generated significant cash flow... the time of the transaction
is closed.
D. Miller I'll just assume around $5 billion by the end of 2003 for Fox.
My audio faded out on one of my colleague's questions with
regard to how you are going to account for this. You'll just
use the equity method, I assume?
D. DeVoe That's correct, yes.
G. Ginsberg Operator, we have time for one more question. For those who
have additional questions, we'll be holding another call with
investors tomorrow morning at 8:30. I think the call-in
number should be on the Media Advisory that we sent out
tonight.
We'll take our final question now.
Coordinator Thank you. Our final question comes from Andy Baker.
A. Baker Thank you. I'm glad I snuck in there under the wire, a couple
of quick questions. First, what's going to be the proportion of
independent directors on the GMH board, post-transaction?
R. Murdoch A majority of independent directors.
A. Baker A majority. The press release makes reference to a potential
$150 million break fee if the transaction is terminated, if News
Corp. ADR is dropped below a certain point. Is there a set
price in the agreement?
D. DeVoe Yes, if News Corp. ADRS were to drop below $14.08,
General Motors has a right to terminate. If they would elect to
terminate, we have a right to cure, by agreeing to issue more
stock to bring the value of the GMH interest to $11 a share.
To the extent that we didn't elect to do that, we would have to
pay a termination fee to them of $150 million.
A. Baker You said $14.08?
D. DeVoe Fourteen dollars and eight cents.
G. Ginsberg Thank you very much, everybody.
This communication shall not constitute an offer to sell or the
solicitation of an offer to buy, nor shall there be any sale of
securities in any jurisdiction in which such offer, solicitation
or sale would be unlawful prior to registration or qualification
under the securities laws of any such jurisdiction. No offering
of securities shall be made except by means of a prospectus meeting
the requirements of Section 10 of the Securities Act of 1933, as
amended.
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may differ materially from those in the forward-looking statements as
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Discussion and Analysis of Financial Condition and Results of
Operations" contained therein. The company disclaims any obligation
to update the forward-looking statements contained herein.
In connection with the proposed transactions, The News Corporation
Limited ("News Corp."), General Motors Corporation ("GM") and Hughes
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