NEW YORK (CNNfn) - Media tycoon Rupert Murdoch is rethinking his position in the direct broadcast satellite business, striking a deal to sell all of News Corp.'s U.S. satellite assets to the nation's second-largest satellite company, PrimeStar Partners.
News Corp. and MCI Communications Corp. will sell their satellite assets to PrimeStar for $1.1 billion, the companies said in a statement. In turn, PrimeStar, a partnership controlled by six of the most powerful media companies in the nation, will reorganize its ownership structure to become a public entity.
The latest development came amid News Corp.'s legal showdown with its previous satellite partner, EchoStar Communications Corp. The two companies have sued each other after a $1-billion-acquisition fell apart. Murdoch had hoped to launch his American Sky Broadcasting, or ASkyB, digital satellite service through the purchase of EchoStar.
Now, few analysts view the latest deal as any sort of victory for Murdoch, who has given up control of the satellite assets but has recognized little or no return on his initial investment.
"It's face-saving...damage control," said Stuart Rossmiller, media analyst at Deutsche Morgan Grenfell.
ASkyB will own a 20-percent, non-voting stake in PrimeStar. News Corp., which controls 80 percent of ASkyB, will receive approximately $820 million worth of equity while MCI receives the remainder.
The satellite assets, consisting of up to four Loral Corp. satellites as well as orbital position purchased through a federal auction, will be exchanged for preferred stock, which is convertible into non-voting PrimeStar common shares. If converted, the News Corp. venture will own a 30-percent, non-voting stake in the newly formed public company.
"It is structured to be passive...he has no choice in the structure," said Richard Westerman, media analyst at UBS Securities.
Rather than a sizable return on his estimated $1.1 billion investment, Murdoch has limited any future exposure to the business, analysts said.
"He's got his money out at roughly what he invested but he didn't have to fund continual development of a money pit," Westerman said.
Indeed, News Corp. believes the transaction was not without benefit. "The focus of the business is content and this is a way for us to recoup our investment," said James Platt, company spokesman.
And, analysts believe that long-term relationships eventually can help Murdoch's content business.
"He's getting peace with the cable industry...Now, cable companies will entertain the idea of adding his start-up cable networks to their cable systems," Rossmiller said.
Rossmiller added Tele-Communications Inc. chief executive John Malone looks to be the real winner. Murdoch's satellite orbital position once belonged to Malone until the Federal Communications Commission took over the slot and auctioned it off to the highest bidder. (245K WAV) (245K AIFF)
As for the ownership structure of PrimeStar, TCI's Satellite Entertainment subsidiary will control about 38 percent; Time Warner Inc., 30 percent; Comcast, 10 percent; MediaOne, an affiliate of U.S. West Media Group, 10 percent; Cox Communications Inc., 10 percent; and GE American Communications Inc., a subsidiary of General Electric Co., 2 percent.
Following the restructuring, PrimeStar will emerge as a publicly traded entity.
-- Robert Liu