Credit analysts note News Corp. savvy in DirecTV acquisition

By Ronda Fears

Nashville, April 10 - Credit analysts note that the long awaited News Corp. Ltd. deal with General Motors Corp. and Hughes Electronics Corp. to gain a controlling stake in DirecTV was struck in a way that will allow News Corp. to keep its commitments to both paying fair value and maintaining its debt ratings.

DirecTV will benefit from an enhanced competitive position while News Corp. finally completes its global satellite television footprint and Fox gains an affiliate distribution channel for its programming, noted CreditSights analysts Patricia Lee and Glenn Reynolds in a report Thursday.

"With News ultimately having been the sole bidder, the company was able to stick to its commitment to not overpay for DirecTV. In addition, the structure of the deal reflects News' commitment to maintaining its low investment grade ratings," the analysts said in the report.

"Given the large stock component of the pending acquisition, both Moody's and S&P affirmed News' Baa3/BBB- ratings with continued stable outlooks."

However, the analysts noted that S&P included the caveat that the transaction will essentially fully tap News Corp.'s financial flexibility and that the rating is dependent on News Corp.'s continued ability to maintain its "consistent earnings performance." S&P also revised its watch on Hughes to positive from developing, while Moody's confirmed its Ba3 rating.

The analysts said News Corp. might be able to effect a few bolt-on station acquisitions to build out its television station network should the Federal Communications Commission, as widely expected, relax its broadcast ownership rules.

On the operational front, the analysts said, DirecTV will benefit from an enhanced competitive position with the ability to not only leverage Fox's proprietary content for its own distribution but also gain enhanced power in negotiating carriage contracts with other content providers.

On the other hand, they added, News Corp. finally completes its global satellite TV footprint with a foothold in the U.S. market and Fox gains an affiliate distribution channel for its programming.

"However, while the companies will certainly benefits from News' extensive satellite TV experience within major non-U.S. markets, News /Fox will be challenged to regain growth momentum at DirecTV," the analysts said.

DirecTV faces a still weak economic environment and the much-enhanced competitive position from the major cable multiple system operators, the analysts said. Multi-system cable operators (MSOs) are more competitive, they said, due to digital cable's ability to offer a broad range of video, voice and data services, whereas direct broadcast satellite systems remains essentially confined to video services.

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