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; 4:30 p.m. CDT
NEWS CORPORATION
April 9, 2003
4:30 p.m. CDT
Coordinator Good afternoon and thank you all for holding.
All participants will be able to listen only
until the question and answer session of the
conference. This conference is also being
recorded. If you have any objections, you
may disconnect at this time. I would now
like to turn the 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, Holly. Hello, everyone, and welcome
to the News Corporation, General Motors and Hughes
Electronics media call, to announce a definitive
agreement our three companies have reached today,
under which News Corporation will acquire a 34%
interest in Hughes Electronics.
Participants on today's call are Rupert Murdoch,
Chairman and Chief Executive of News Corporation;
Rick Wagoner, President and CEO of General Motors;
Jack Shaw, President and CEO of Hughes Electronics;
and Chase Carey, who upon the closing of the
transaction will become President and CEO of Hughes.
Also here today to answer questions after our four
participants speak are Peter Chernin, President and
CEO of News Corp.; Dave DeVoe, CFO of News Corp.;
John Devine, Vice Chairman and CFO of General Motors;
and Eddy Hartenstein, Corporate Senior Executive Vice
President of Hughes and Chairman and CEO of DIRECTV.
Before I turn the call over to Rupert, let me very
quickly note that under Short Form Rule 425, GM,
Hughes and News intend to file a proxy or a consent
solicitation statement and other... with the SEC in
connection with the proposed transaction. Because
they will contain important information, stockholders
are urged to read these materials which when filed
will become available free of charge at the SEC's Web
site, www.sec.gov.
Stockholders will also receive information at an
appropriate time on how to obtain transaction-related
documents for free from GM and News. In addition,
information regarding those persons who will participate
in the solicitation of GM stockholders has or will be
filed by GM and Hughes with the SEC. This call does not
constitute an offer to sell or a 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 the public filings of GM, Hughes and News with the
SEC, that could cause actual results to be materially
different from those in the forward-looking statements.
With that, let me introduce Rupert Murdoch.
R. Murdoch Thank you, Gary. Good afternoon, ladies and gentlemen.
To those of you who have been eagerly waiting on hold,
I'd just say, try it for three years. Anyway, we're here
to announce what is an extremely exciting event for News
Corporation, the Fox Entertainment Group, and Hughes
Electronics. Today, after three years of patient
negotiations, but ultimately great satisfaction, we have
reached agreement with the boards of General Motors and
General Motors Hughes to acquisition 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 today. For the
shareholders and customers of News Corporation, Fox
Entertainment Group and GMH, today marks the start of a
bright future.
Let me briefly summarize the highlights of the definitive
deal that we reached today. Under our agreement, News
Corporation will acquisition GM's 19.9% stake in Hughes at
a price of $3.8 billion, or $14 a share, comprising
$3,070,000,000 in cash, and 34.3 million preferred limited
voting ordinary ADR's at a value of $22.40 each.
News Corporation will acquire an additional 14.1% of Hughes
from public shareholders, and GM's pension and other benefit
plans, at a price of $14 a share, which we will pay using 122.2
million News Corp. preferred ADR's, using a base ADR price
of $22.40. 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 promissory notes amounting to $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 the chairman of Hughes; Chase
Carey will become the company's president and 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, 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 who are listed I think
in the official announcement.
Now, I know that 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 that
structure. Second of all, the company's position within Fox
Entertainment Group will facilitate the mutually beneficial
relationship we look forward to forging between Hughes and
Fox.
For 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 direct-to-home platform
capable of delivering our content to American satellite
television viewers represents an invaluable outlet for our
television products, and our landscape of increasing choice,
but also increasing consolidation. Such an outlet is essential if
we are to ensure that our existent 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 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, 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 thrive on.
In the case of DIRECT Television, 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 whenever possible.
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'm going to tell you that Hughes
management has done a magnificent job running their business
and controlling costs in the uncertain circumstances of the past
two or three 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 in other places around the world.
We are fully confident that by doing so, we will create greater
choice and make greater viewing experience for all Americans.
In the process, our efforts will 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 best chance to break cable's
still dominant hold on viewers.
The person who will oversee our efforts, as I mentioned, is
Chase Carey, the President and Chief Executive Officer of Hughes.
In a few minutes, Chase will give you a better sense of some of
the strategies and improvements that we plan for DIRECT.
First, I'd like to add that throughout these negotiations,
everybody at General Motors and Hughes have been open and
straightforward and a pleasure to deal with. So now I'd like to
turn the call over to General Motors' President and Chief
Executive Officer, Mr. Rick Wagoner.
R. Wagoner Thanks very much, Rupert. Again, congratulations, and good
evening to all of you who have joined us. I'm also very happy
to be able to participate in this long-awaited and we think very
good proposal regarding Hughes. I want to offer a little bit of
a perspective on it from General Motors' viewpoint.
I'd like to start, though, by thanking our teams at GM and
Hughes for their efforts in working this transaction from our
side. John Devine led those with Jack Shaw from Hughes. A
lot of hard work and good work, as Rupert said, and I think
very constructive work with his team, and we appreciate that.
Hughes has been part of the GM family in one form or another
since 1985, when we first acquired Hughes Aircraft Company
from the Howard Hughes Medical Institute. Since that time,
Hughes has brought a lot of value to General Motors'
shareholders, and it has evolved from really what was an
engineering, manufacturing and defense business to a high-
technology, high-growth entertainment and satellite services
business.
Given this transformation, the time has come when Hughes
will be better able, better served to realize its growth
potential under a different ownership structure, and we
think today's announcement with News provides exactly the
right structure. As you know, Hughes will become an independent
publicly traded company; strong board under the leadership
of Rupert Murdoch and a proven management team led by Chase
Carey and Eddy Hartenstein.
With this transaction, General Motors will turn our store of
value in Hughes into cash, and significantly strengthen GM's
balance sheet. I'd like to describe the transaction structure
briefly from our perspective. It's also detailed in the press
release, which has been out now for a little bit.
First of all, GM will separate Hughes by splitting it off to
holders of GM Class H common stock. GM will sell its
19.9% interest in Hughes for approximately $3.8 billion. As
part of that transaction, holders of GM Class H will exchange
about 17 1/2% of their holdings for an equivalent of about $14
per share in News Corp. stock and/or cash. We think this
represents excellent value for the Class H shareholders.
Shareholders' remaining Class H stock will be exchanged on a
one-for-one basis for an asset-based capital stock of Hughes.
From GM's perspective, besides the sale of our shares to
News Corp., as mentioned earlier, GM will receive a dividend
of $275 million in consideration of the value enhancement for
you shareholders which arises from the conversion from a
tracking stock to an asset-based stock.
In the end, the majority of the equity interest in the New
Hughes, as we call it, about two thirds of it or 66% will be
held in public hands, and News Corp. will own 34%. I should
add, GM's pension and benefit plans currently hold about 23%
of the outstanding Class A stock, and as such will remain
major shareholders in the New Hughes.
As Rupert mentioned, we'll be seeking shareholder approval
of the proposal, and then concurrently antitrust clearance and
SEC clearance, and we are highly confident, together with
News Corporation, that we can be successful in each of these
cases. Overall and in summary, we think this is a good
transaction; we think it brings substantial benefits for both
General Motors and Class H shareholders; and we think it
promises a great future for the Hughes business.
With that, let me turn it over to Jack Shaw, who is Hughes'
president and CEO. Jack?
J. Shaw Thanks, Rick. When General Motors acquired Hughes in
1985, it was the nation's number one supplier of
communication satellites and defense and automotive
electronics, with a history of technological achievements that
range from the first working laser to the world's first
geographic-synchronous satellite. We had 105,000 employees
in sales and $9.5 billion.
Today, after divesting our automotive, defense electronics and
satellite manufacturing businesses, we are the world's top
digital direct-to-home satellite broadcaster and private satellite
fleet operator, and a leading set-top box manufacturer as well
as the leading supplier of data communication networks to
business enterprises around the world, with some 12,000
employees and sales of $8.9 billion.
Hughes has done well under GM, and we thank them for their
stewardship and their willingness to work at understanding a
business so different from making automobiles. I want to
commend for its unwavering support of Hughes. We've taken
some pretty big risks over the years, including launching the
nation's first high-powered direct broadcast satellite TV
service, and GM has always stood behind us.
Getting to this day has been a long and difficult experience for
all concerned. It has been especially difficult for the people of
Hughes. They deserve high praise for their ability to conduct,
grow, and strengthen our businesses over the last couple of
years as the company's future hung in the balance.
I particularly want to recognize the tireless work of Eddy
Hartenstein, Pradman Kaul, Roxanne Austin, Joe Wright,
Larry Chapman and their respective management teams, who
kept our operating companies focused on day-to-day business
while our corporate management was engaging in planning
Hughes' strategic future. They never took their eyes off the
ball.
This transaction is unique and special, in that it brings together
the two companies that, unlike any others today, have
unrivaled experience and expertise in satellite broadcasting
services. We have a passion for satellite, and News
Corporation has a passion for satellites. Hughes', coupled
with News Corporation's existing satellite platforms, will have
unparalleled capability and capacity to distribute programming
worldwide and locally in the U.S.
Having Rupert Murdoch head the New Hughes is just great.
He has a fantastic track record in our industry, and to be allied
with his worldwide broadcasting and entertainment company
bodes well for our customers, our shareholders, and our
employees. Rupert's passion for this business has never
wavered over these many years, and I have no doubt will only
increase with time.
Rupert Murdoch and Hughes are not strangers to one another.
Some of you may remember that back in 1990, there was a
partnership named Sky Cable, involving Hughes, News
Corporation, NBC and Cablevision. The partnership didn't
endure, but DIRECTV was born as a result.
Once, somebody asked me about a relationship with Mr.
Murdoch. I said he was a customer, a competitor, and a
supplier, all at the same time. He bought Hughes satellites to
broadcast to BSkyB subscribers in Britain. He competed with
us in Japan and Latin America, and he supplies programming
services to DIRECTV.
Chase Carey, who will succeed me as Hughes' CEO, has an
outstanding record at News Corp. When he joined the firm in
1988, it had, to quote Chase, "a two-night-a-week broadcast
network, seven stations, no cable programming, international
television operations or sports, and news programming."
Today, News Corp. is unrivaled in its role as a global media
leader. Much of that success is due to Chase's efforts.
We at Hughes have always been big believers in the unrivaled
reach, efficiency and scale that is inherent with a direct
broadcast satellite platform. We took a nascent idea, and
despite the naysayers, and there were many, have in nine
years built DIRECTV into the number two multi-channel TV
service in the United States, with more than 11 million
customers.
Rupert, Chase, and their News Corp. colleagues share that
common belief and recognize the tremendous future
opportunities that await the New Hughes. When this deal
closes, there will be many winners. GM, News Corp., and
Hughes will be winners. The stockholders and employees of
each company will be winners. We believe that by becoming
an asset-based stock, Hughes will be able to unlock its true
value.
But the biggest winners will be the folks who subscribe to
direct broadcast satellite services. They will be the biggest
winners of all, as they enjoy even more and better
programming, increased interactivity and every competitive
pricing. Perhaps the only folks who aren't in the winner
category are our competitors. You can be sure that the
competitive spirit that is instilled in the Hughes company will
flourish and be taken to an even higher level in the days to
come.
Finally, I want to assure you that our operating companies will
not be distracted by the legal and regulatory process that has to
occur before the close. They will focus on their customers.
My corporate staff and I will focus on getting the deal done as
quickly as possible. Remember, we've had a lot of practice.
I'd like to turn it over to Chase Carey now.
C. Carey Thank you, Jack, and thank you for your kind words. Before I
get into our plans for Hughes, I want to reinforce something
both Rupert and Jack have mentioned as they spoke, and that
is the truly impressive job the management of Hughes has
done over the past few years. It's certainly not easy running a
company under any circumstances, but it's an awful lot harder
when the future of that company is in flux. So it is with a
great deal of admiration that we recognize the accomplishments
of Jack, Eddy, Roxanne, Pradman, Joe, Larry and the rest of
the Hughes team, and we really do look forward to supporting
and working with them as we build on the success of Hughes.
We are highly supportive of this management, and we want them
to be as successful as possible.
Clearly the cornerstone of Hughes, of course, is DIRECTV,
which has successfully established itself as the market leader
in U.S. satellite television. 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
strengths 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 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 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 generally
considered the premier 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 is considerable work still to do, and we plan to enhance
those managers' efforts by attacking costs like programming,
marketing, churn and set-top boxes. We will also work with
DIRECTV management on a plan to maximize the platform's growth
potential.
DIRECTV already provides a great consumer experience, but
we plan to make it even better. Initiative scenarios like
customer service, marketing onscreen guides, program
packaging and choice will be critical as we work to further
increase the excellence of DIRECTV's offerings to customers.
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 to consumers.
Yet, while DIRECTV is a 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 represents an
entirely new generation of capability.
In other businesses, like Latin America, there are significant
challenges to address, and we will 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 this company is a
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 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 and improvements from here.
We look forward to meeting all these challenges as we bring
to this opportunity the talents, the experience, and clearly the
excitement that we've developed in television markets all over
the world. I think that 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.
G. Ginsberg Operator, we'll now be ready to take questions.
Coordinator Floyd Norris, you may ask your question, and please state
your company name.
F. Norris Thank you. This is Floyd Norris from the New York Times.
I'm sorry, there are a couple of things. Did I understand GM
was also getting some extra cash out of this besides the $3
billion that they'll get directly from News Corporation? And
related to that, why is this deal being structured so that GM
gets cash and its shareholders don't?
R. Wagoner Floyd, Rick Wagoner. Your first question, basically what we
indicated, and as noted in the press release, the value of the
19.9% of the shares that are being sold by GM to News Corp.
is approximately $3.8 billion, some cash, some stock. In
addition to that, GM is going to receive a special dividend of
$275 million from Hughes, in consideration for value
enhancement for H shareholders, which arises from converting
from a tracking stock to an asset-based stock.
F. Norris That was $375 million?
R. Wagoner $275 million.
F. Norris I'm going to ask John Devine to comment on the second
question, please.
J. Devine Floyd, to answer your second question in terms of why cash, is
we have no choice. As part of the structure we've agreed a
tax-free spin-off, which we think has considerable value to the
shareholders; and as part of that, you're required to sell all
your shares. You can do it over a period of time, but you have
to sell all your shares; so we've elected to that as part of this
transaction, but we do it because we have...
F. Norris You couldn't take stock too?
J. Devine We could take some stock in News, you mean?
F. Norris Yes.
J. Devine We are, in some of the stock; we are taking part of it in stock.
F. Norris You couldn't take all of it in stock without messing up the tax
benefits?
J. Devine We could. Obviously liquidity is important to General
Motors. But we've agreed to take a combination of both cash
and stock.
F. Norris So why do you have to? You don't have to do it.
J. Devine No; we do. You don't understand. We have to sell the
Hughes share, the tracking stock, as part of a tax-free spin-off.
That's required under tax law.
F. Norris Under tax law, the shareholders can't get cash and make it a
tax-free deal. You could take all stock. Your decision to take
cash...
(Parties speaking simultaneously.)
J. Devine We have to sell the Hughes tracking stock...
F. Norris ...while the shareholders don't was your decision.
J. Devine ...in order to qualify for a tax-free spin-off. We're doing that.
We don't have to sell it at one time, we could sell it over a
period of time; but we don't have a lot of time to do that. So
we are doing that. We are taking some stock as part of this
transaction. But we have to sell the Hughes tracking stock as
part of the tax structure.
G. Ginsberg I would ask that the media from this point forward, please
limit your number of questions to one. Thank you.
Coordinator Peter Thal-Larsen, you may ask your question, and please
state your company name.
P. Thal-Larsen Peter Thal-Larsen from the Financial Times. I have a question
for Mr. Wagoner. Given that you had an offer from Mr. Murdoch
for this business something like 18 months ago at a valuation,
I think according to my calculations at least 30, 35% higher
than what you're receiving today. How do you explain to GM
shareholders that you didn't take that offer at the time, and
how do you explain the sort of reduction in value that you've
had to kind of come up with now.
R. Wagoner You'd better recheck your math. The economic value to GM
is about the same. The reason we took the other proposal at
the time, because our board determined that it offered higher
value to both sets of shareholders. That wasn't approved. We
then began this second-round process to try to come up with
what was the best transaction for Hughes and General Motors
and their shareholders, and News came up with what we
thought was the best value transaction.
It is a much simpler transaction than the initial proposal that
we looked at, the initial round of proposals, for a variety of
reasons. The economic value is roughly the same for General
Motors; and we think for the Hughes' shareholders, actually,
this is going to work out better for two reasons. In the interim
period, Hughes has frankly got its business running much
better, which is a plus; and as I say, because the transaction I
think is much simpler, some of this is all tax-related from the
GM side, so it was us that set those rules. I think it's going to
enable us to, with the support of obviously News under this
new structure, going to run better; so from our perspective, I
think we're better off with this proposal than if we had taken
the initial proposal from News, but obviously there has been a
delay in time. I think from a value perspective, though, it
works out about the same.
P. Thal-Larson Sorry, can you clarify, how do you work out the economic
value is the same to GM at this price as it was at the end of
2001?
R. Wagoner Just do the math. We just did the math. It just adds right up,
if you do the total math value.
P. Thal-Larson Can you go through that calculation?
R. Wagoner Incidentally, I'm not sure we ever announced the News deal
that we did not accept the first time; so I think maybe the
problem is, you might not have the initial base point that GM
had, because we didn't announce that. Obviously we
announced the offer that we had chosen at the time.
Coordinator John Lippman, you may ask your question, and please state
your company name.
J. Lippman Wall Street Journal. I was wondering, Mr. Murdoch, what
sort of concrete plans News Corp. has to try to grow the
DIRECTV subscriber base. As you may be aware, surely are,
growth rates for DBS had been slowing down; the business
has been maturing. Some analysts and consulting firms are
now cutting back their projections for DBS growth in the face
of broadband being offered from cable. In what sort of ways
can News Corp. revitalize the growth of DIRECTV?
R. Murdoch I think there are a lot of ways to make it more exciting, but I'd
challenge what you said there, John. The growth of satellite
television is going on apace. Both companies are growing by
about a million a year, let's say two million together, whereas
cable is going down by about one million. I think they lost a
million last year. So I wouldn't think there's any maturing at
all going on; and particularly now with the growth of putting
local stations in, in the local-to-local business, it's making
satellite again more attractive and... growth. But there are
many things, you look at what we're doing in London, that
really enhance the viewing experience, putting interactivity
capacity into the set-top boxes and of course putting PVR's in
as well, although Hughes has just started doing that here with
TiVo, I believe.
J. Lippman Putting what in? I'm sorry, I didn't catch that.
R. Murdoch PVR's.
J. Lippman Yes.
R. Murdoch Which will grow more powerful every year, probably double
in power, the capacity of the hard disks.
J. Lippman You think those will attract new customers to...
R. Murdoch John, we're not frightened by broadband. We'll be providing
broadband for those that want it, but I think there will be many
platforms for broadband; and the supply of broadband may
well become a commodity, whether it's by satellite or... or
cable or DSL. It is not a killer app for cable.
J. Lippman Broadband's not a killer app.
R. Murdoch No.
G. Ginsberg Again, I'd just please remind people to keep your questions to
one. We'll get through more questions that way, and then we
can come back for follow-ups if we have time.
Coordinator Bill Koenig, you may ask your question, and please state your
company name.
B. Koenig Bloomberg News. This is a question for either Rick Wagoner
or John Devine. As part of the deal, as you said, you're
getting mostly cash but some shares; is it News Corp. ADR's,
I think? How long do you anticipate holding onto those
shares?
J. Devine This is John. We haven't made a decision on that, so we'll
decide that sometime in the future after the deal is completed.
B. Koenig All right, thank you.
Coordinator Steve Hansen, you may ask your question, and please state
your company name.
S. Hansen Millennium Partners. I would like you to explain, or how you
can explain the $275 million dividend payment as being value-
enhancing when it seems like there's no benefit to the GMH
shareholders, and a truly value-enhancing deal would have
been to just create an asset-based stock and then tender for
33% of the shares. Thank you.
R. Wagoner We don't agree with your view, obviously; and I think, in fact
with significant input from a range of investment bankers,
there's a fairly broad-based consensus that an asset-based
stock is worth more than a so-called letter stock. As an
example, when EBS was spun off, moved from a letter stock
to an asset stock and spun off from GM, there was a
comparable distribution made actually on a percentage basis,
about twice as high. If you look at other kinds of M&A
transactions which involve things such as differential voting
rights, you find similar kinds of premiums, so I guess we
would challenge your premise; and we think, again, these
decisions are made by each set of board of directors, both H
and GM, and there is a capital stock committee which judges
fairness. Those committees and boards have met a number of
times on this transaction, and to be honest, there are gives and
takes; and Jack and his team represent Hughes' management
with the support of two independent investment bankers, and
this is, if you will, the negotiated settlement which balances
the interests of all parties.
I want to be clear, we think this is, Jack should be able to
speak for himself here, but from the Hughes' shareholder
perspective, this is really a nice deal, because they basically,
with the asset-based stock and with the help of News now, we
think the business is going to be in a position to grow much
more rapidly than we could under the letter structure with
General Motors, for reasons which have been discussed over
the years.
Jack, you may want to add to that.
J. Shaw Yes; I agree with what you say, Rick. From our perspective,
there are the three companies involved in a transaction like
this, and it's a difficult transaction to come up with a final
deal. We at Hughes and our board felt it was very important
that we become an asset-based stock, and this $275 million is
something that we thought was a reasonable contribution from
the Hughes side to get the deal done.
We do have the cash. As you know, we went out on a debt
offering as well as a bond offering, and so we do have the
cash; so this was not a difficult decision from the Hughes side.
Coordinator Sinead Carew, you may ask your question, and please state
your company name.
S. Carew I'm from Reuters. Can I ask what's going to happen with
PanAmSat and Network Services now? Also, I'm sorry, it
wasn't clear, when you were talking about broadband. On the
one hand you were saying you're going to offer broadband,
but on the other hand you were saying, well, it's not, it could
become a commodity. Maybe if you can explain your plans a
little bit more.
C. Carey Sure. This is Chase Carey. Right now our plans for the HNS
and PanAmSat business is to operate them, keep them, and
drive them to their full potential. They're businesses we're
excited about, and we look forward to working with.
As it relates to broadband, which Rupert spoke about, I think
what we're saying is we will have a broadband satellite option,
but broadband really, there will be an array of choices for a
consumer. DSL is out there today, beyond cable, cable
modems; there are new technologies coming that people talk
about... I think what we expect in broadband is to have an
array of choices for the consumer in the marketplace. Satellite
will be one of them, but there will be an array, and we'll work
with the various players to create an attractive opportunity for
the customer to pursue broadband side by side with video.
S. Carew So basically you're saying that you're going to do partnerships
for your broadband.
C. Carey I think it remains to be seen how it all evolves. To what
degree are there simply offers in the marketplace. I don't
think partnerships are necessarily required. I don't think it's
been proven that bundling is critical, that people want to see
one bill. I think to some degree there is obviously price
competition between the players that are offering these, but I
think it's going to be a vibrant, evolving marketplace, and we
will make sure there are offers for the consumers that enable
us to compete fully.
S. Carew Okay. You didn't really explain how PanAmSat and Network
Services fits with the News Corp. business.
R. Murdoch Oh, yes, I can. I think it's a...
S. Carew Who is this? I'm sorry.
R. Murdoch Murdoch here. The satellite business has been consolidating
very strongly, and DIRECTV of course have their own
satellite and their own spectrum; but it could well be of
interest to us in our other operations in other parts of the
world, and we don't really want to become a victim of one
European monopoly or duopoly having all the satellite
services in the world, which is where it's heading at the
moment. But we've got an open mind about it. It makes a
steady cash flow of, I think it's rising towards $500 million a
year, and we're not going to walk away from that in a hurry.
S. Carew From PanAmSat or Hughes Network Services? I want to
make sure which one you were referring to when you said
that.
R. Murdoch I was talking about PanAmSat.
S. Carew Okay, thanks.
Coordinator Luke Collins, you may ask your question, and please state
your company name.
L. Collins Luke Collins from the Australian Financial Review. This is
for Mr. Murdoch. Both you and Mr. Shaw have spoken about the
synergies, if you like, between DIRECTV and the other
satellite-based pay-television operations of News Corp., which
makes it seem reasonably compelling to have DIRECT housed
within, say, a Sky Global Network structure, which Mr. Carey
was going to be the head of. So I'm wondering whether or not
this is simply, the current structure is a way of getting this
transaction done, and you might then revert to an integrated
satellite/pay-TV distribution entity.
Secondly, I wanted to get your personal thoughts about finally
realizing your 20-year attempt to crack into the U.S. market.
R. Murdoch The second question, I just said it's very satisfying, or will be
when we get through Washington. What was your first
question; I'm sorry?
L. Collins It was just about, it seems reasonably compelling to house
Hughes within Sky Global Network...
R. Murdoch Yes. I think the Sky Global Network idea, we've sort of
moved on from that. But there will be mutual interest, I
believe, between the various platforms in the design and
purchase of set-top boxes and equipment, maybe even in
programming from third parties. There's a whole array of
things in which there may be some very worthwhile
economies to be made.
C. Carey Yes. I think there really still is very much a win/win
opportunity to find ways to work together to take advantage of
the breadth of reach that these multiple satellite platforms
have, whether it's new operating systems, interactivity such as
BSkyB has today. I think we'll be very opportunistic about
finding win/win opportunities.
L. Collins Might you create, perhaps, for example, an executive
committee of the various chiefs of those satellite entities to
further coordinate that?
C. Carey I'm not your big believer in committee management. I think
we know the various players, and I think we're knowledgeable
about the business, and I think can act without committee
creations to find opportunities that make sense for everybody.
L. Collins Great. Thank you.
Coordinator Nic Hopkins, you may ask your question, and please state
your company name.
N. Hopkins This is a question for Mr. Murdoch. It's Nic Hopkins from the
Times of London. I'm just curious to know what are the
regulatory issues you would expect to encounter, given that
obviously Hughes is an international business; you have some
competition with DIRECTV in Latin America; and would you
also anticipate any interest from the European Commission?
R. Murdoch Certainly not from the European Commission; this is not a big
enough business in Europe in any way to attract that attention.
As for Washington, the only possible thing that could have
attracted criticism, we have addressed in our statement, which
is to have completely open access to our platform to all
suppliers, and not to use it in any way for exclusive Fox or
News Corporation product. That was the only thing that could
have been raised at all. We don't see anything else. It is
vertical integration, but that has been fought and won by
Time-Warner, by ComCast, by plenty of other companies in
this country already. That bridge has been crossed. So we
don't see any serious legal problems at all.
N. Hopkins If I may, there is the issue, though, of Latin America where...
R. Murdoch Yes, there will be some regulatory things there to do, which
we haven't addressed yet; in Mexico and in Brazil and the
various countries.
C. Carey We don't view those as being issues with regards to the larger
transaction.
N. Hopkins Do you think you might be pressed into making smaller
divestments of any sorts?
C. Carey No.
R. Murdoch We'd have to see that.
C. Carey All right, thank you.
Coordinator Paul Chavez, you may ask your question, and please state your
company name.
P. Chavez The Associated Press. I had a question about the total value of
the deal, and how the $6.6 billion figure was gained.
R. Murdoch It was a result of hard negotiations. We try to pay less and
they try to get more...
P. Chavez I mean, I know that there's a $3.8 billion figure and that $275
million, switching it over to an asset-based stock; but how do
you reconcile those figures with the larger 6.6 figure?
M It's 34% of the company at $14 a share.
M We're acquiring 470 million shares at $14 a share. If you do
the calculation, it's roughly $6.6 billion.
J. Shaw The $17.1 billion is the market cap of Hughes, though, at
today's price.
R. Murdoch How much?
J. Shaw Seventeen billion is the market cap of Hughes at today's price.
It's in the GM press release. I think that's what the questioner
is referring to?
P. Chavez Right.
R. Murdoch This puts a price, I think, of like 19 1/2 on it.
J. Shaw Right. There's a statement; I don't know if you've had a
chance to read our press release, Rupert. I suppose not, since
we just finished it up before we got on the call here; but
basically we just highlight that today, based on the closing
price today, the market value of the Hughes shares in total,
including those held by the GM family, is about $17 billion;
and I think that's maybe what the questioner was picking up
on.
Coordinator William Cavaller, you may ask your question, and please state
your company name.
W. Cavaller Bill Cavaller, Commerce Bank. I'm a GMH shareholder. I'm
not an investment banker and I'm not a business person, and I
can see that from the investment banking and business
people's side, this is a great deal. But from a GHM
shareholder perspective, you loaded $3 billion of debt on the
company; you're taking another $275 million in what sounds
like a bribe to GM. What do I get out of this? I don't really
understand why I would ever vote for this transaction. Can
you explain it to me?
G. Ginsberg If I could interrupt for a second, this is a media call. There
will be investor calls beginning, for News Corp., tonight; and
GM and GMH will be having investor calls tomorrow. So
could we please defer your question to tomorrow, to the
appropriate call, and take the next call from the press. I'm
sorry to interrupt that, but this is a press call.
W. Cavaller There is no answer to the...
J. Shaw ...we'll be glad to answer it, because we have a very good
answer to it.
Coordinator John Lippman, you may ask your question, and please state
your company name.
J. Lippman Wall Street Journal. Perhaps this is a question for Dave
DeVoe. Do you see, as you begin to absorb DIRECTV, are
there any sort of rationalizations or cost savings that you can
effect, and if so, do you have any estimates as to what it might
be and how you might go about it?
D. DeVoe John, it's probably a question for Chase, but from...
J. Lippman Okay, Chase, then.
D. DeVoe News Corp.'s perspective with respect to the transaction and
its effect on both Fox and the News Corporation in the first
fiscal year that we will own the business, which is fiscal '05, a
whole year of operation, we would expect the transaction on
News and at Fox to be somewhere between marginally
dilutive to slightly accretive at both companies. Chase, do you
want to...
C. Carey Yes; I think in terms of costs, and I touched on it up front,
clearly costs are an issue at DIRECTV. They have been, and
DIRECTV acknowledges it, and they've made real strides to
address the cost issues. They've made real progress, and as
they said, there are still initiatives they have underway. I think
what we would really bring to them is an across-the-board set
of insights and experience and expertise from operating this
array of businesses that would hopefully enhance their ability
to really achieve the type of margins we think are possible in
this business. I think that really is every area you look at. It's
programming, it's marketing, it's churn, it's SAC, it's set-top
box costs. Various technological innovations that you bring
in, as you bring on new technologies and the costs related to
them. I think all of those are areas where we'd look to
enhance the initiatives that DIRECTV has been working hard
on, and making real progress on; and that we would be able to
help them take those savings beyond where they've been and
to where we think they should be.
J. Lippman Can you put a number on it?
C. Carey I don't think it's the type of thing I'd quantify. It's a lot of
different initiatives across really almost every area that the
company operates in, but it's not something that I'd quantify
to a specific number. It's an ongoing process that we'll deal
with.
Coordinator George Szalai, you may ask your question.
G. Szalai The Hollywood Reporter. A question for Mr. Murdoch. I was
wondering, since you have to write down the line to increase
your stake from 34%, if currently you would expect to take
advantage of that option, and what the advantages to News
Corp. would be of increasing its stake.
R. Murdoch First of all, we're limited in this agreement not to buy any
more shares for at least 12 months. I think after that we'll
address the question. But we have certainly no plans to.
We're very satisfied with the governance clauses here. We
think we can have all the influence that we need to have with
our 34%.
G. Szalai Are you expecting that Liberty Media is going to use its option
to increase its stake in News Corp., or have you talked to them
at all? Would you expect to exercise your option to bring in
some cash from their side to help finance this deal?
R. Murdoch I think it's probable that, yes, they'll either exercise their
option or we'll exercise our call. That's probable.
G. Szalai Thank you.
Coordinator George Mannis, you may ask your question, and please state
your company name.
G. Mannis It's George Mannis from thestreet.com. Two things. One is,
first off, for Mr. Murdoch, what mechanism or safeguards do
you expect to have in place to ensure that equal access for
other programmers? Second, you talk about the difficulty
without this distribution channel for getting Fox programming
to the audience in the U.S. Can you talk a little more about
why you would have that difficulty, and also what specific
things you expect to be doing with your programming to make
sure it gets that audience?
R. Murdoch We're doing pretty well now with our audiences everywhere.
We're very happy with them. As to the first part of your
question, we don't need a mechanism. I can assure you, if we
don't follow through on this pledge, you'll get such a scream
from every supplier and from all of Hollywood that you'll
hear about it.
G. Mannis No, but you said yourself at the very beginning that you
wouldn't be able to reach the audience for your current and
future programming, or at least your ability to reach that
audience with current and future programming would be
assisted by this transaction; and can you talk specifically...
R. Murdoch I don't think I did say that.
G. Mannis "In the landscape of increasing choice, doing this is essential if
we are to assure that our existing content and the content we
will create gets to an audience." I believe that was part of
your speech.
R. Murdoch I think if we were to create very compelling content and it was
to be launched on DIRECT, that cable companies would want
to buy it on the same terms very quickly, and it will be
available to them. We're not going to keep anything exclusive
in that way.
G. Mannis But how will it increase, like what type, are you going to do
new channels, to start them out on the satellite programming?
R. Murdoch We don't have any specific plans at the moment, but that's
one alternative, certainly. I'd just say this: it's taken us six or
seven years to get what is about 90% distribution of the Fox
News Channel, and I think with this sort of exposure, that sort
of thing will happen a lot faster.
Coordinator John Higgins, you may ask your question, and please state
your company name.
J. Higgins Broadcasting & Cable Magazine. Rupert, could you give us
some detail of the approach by Charlie Ergen to possibly sell
EchoStar a couple of months ago? And Rick, are you
disappointed that you weren't really able to gin up much of an
auction, that you didn't get much of a bidding war going on?
R. Murdoch To answer the first part, I don't know how serious Charlie
was, whether he was just testing the waters. I don't believe
that, I know Charlie well enough now to think that he would
be definitely lost without EchoStar; he lives that business and
he runs it very well. I expect him to be a very healthy
competitor.
R. Wagoner On my half of the question there, I think we came to a
transaction here which, from our perspective, is very, very
satisfactory, as we went into this and looked at the options
post the defeat of the initial proposal down in Washington.
We had some ideas of what we thought was fair value for GM
and Hughes, and we wanted to make sure that a transaction
achieved that; and I think in this sense it worked out just fine.
I think we've got a great transaction for both of us, and I think
we have a buyer on the other side who brings a huge amount
of expertise to this business. So from our perspective, we
were able to satisfy, if you will, all the buckets quite nicely,
and we're very happy with the transaction.
I want to be clear: We didn't have to go ahead. There was no
requirement that we proceed with this transaction now, so we
did it very much on the basis that we thought this was a good
deal for all the parties that we have to represent, and we feel
good about, as we send Hughes off, if you will, into other
hands, we feel very good about their future. So we're very
pleased with the way it came out.
Coordinator Russ Britt, you may ask your question, and please state your
company name.
R. Britt I'm with CBS Market Watch. I have actually a two-parter.
Speaking of EchoStar, they got a good long look at DIRECTV
operations over 14 months as a result of the due diligence
process. Are you at all concerned, Mr. Murdoch, about that?
Are you making any plans for steering the business as a result
of what they got a look at? And if you could also comment on
the significant of being the only major broadcast network with
a major pay-TV distribution operation now.
R. Murdoch First of all, as far as Charlie Ergen having a good look, no; I
think this is a pretty small world and there aren't many secrets.
I think we know what he's up to, what his possibilities are and
how he thinks, and I think he knows the same about us. But
on the broadcast network, no; there's just no crossover there at
all, really.
R. Britt I guess I'm not really talking about crossover; I'm talking
about you as a media company, having both of those
operations at...
R. Murdoch Well, the two are quite different. One is something that we
create and drive and promote within... it's creative
programming, creative scheduling, and that's something
which we're totally responsible for. Here, we're really a
carrier for the whole industry, and there's really no conflict in
that at all.
R. Britt Does that give you a strategic advantage over other media
companies?
R. Murdoch I can't see it.
R. Britt Thank you.
Coordinator Bob Sherman, you may ask your question.
B. Sherman I'd like to ask Rupert and Chase the one question that I've
gotten from people inside DIRECTV time and time again over
the last few weeks, and since they can't ask it, I'll ask it for
them. When can we expect a specific regime change inside
DIRECTV specifically? Can you map out... you've given a
little conflicting information on the call. Who's going to be
running DIRECTV and when?
R. Murdoch We would expect really to leave everybody where they are,
and they'll be reporting to Chase Carey after the changeover,
rather than to Jack Shaw, whom we understand is planning his
retirement.
C. Carey I meant it when I said we're very supportive of this
management. They've done a great job in building this
business in a very tough environment. Look, they've built the
market leader. I do think we believe we can enhance that
management, but our initiatives are going to be to enhance
what the management is undertaking, not the change. We
believe we can bring some expertise and perspectives, but
that's really how I'm planning to run it.
B. Sherman Is Tony Ball going to be brought over from Sky to run
DIRECTV?
C. Carey No.
B. Sherman So there are no plans to bring anybody in from outside, other
than you at this point, Chase?
C. Carey The only plans I have right now are to work with the
management in place to determine how we can take the
business to its full potential, enhance their performance, and
drive it forward.
B. Sherman Since everyone else got nine questions, let me just ask two
very specific things: Is this going to be, in the strictest legal
sense, both at the FCC and from a corporate governance
situation, change of control?
M Technically, under the FCC rules, it would be. That's why
you're going down for approvals. That's just assumed, in
connection with the application process.
B. Sherman So you will be filing this at the FCC as well as Justice?
M That's correct.
B. Sherman Then also, I assume at this point there will be a standstill
agreement fairly quickly in the litigation between NDS and
DIRECTV?
C. Carey There's not a standstill on that. I think obviously all of us
would prefer to work something out on a business basis as
opposed to litigation, but there's not a standstill; though I
think we all recognize we'd prefer to find a business solution
here.
B. Sherman Yes, but if you guys wind up owning DIRECTV, you're not
going to sue yourselves.
G. Ginsberg We have to move on. Operator, we have time for one last
question.
Coordinator Jane Schultz, you may ask your question, and please state your
company name.
J. Schulze Jane Schulze at The Australian. Mr. Murdoch, the question
for you is, have you now achieved everything you ever set out
to when you... so long ago, and do you have any other
challenges left?
R. Murdoch There are always new challenges, but I don't have any in mind
at the moment, Jane.
L. Murdoch The Australian's circulation is the one I can think of.
R. Murdoch Just make that paper look better, will you?
J. Schulze But Mr. Murdoch, do you see this as the culmination of what
you've always set out to achieve?
R. Murdoch I think for a long time we've had ambitions to be in the
distribution business here and elsewhere; we think it's a great
business. We think the growth of multi-channel television and
choice of the public is something that's very popular, and it's
something to base a very sound business on.
G. Ginsberg Thank you very much, everybody, for participating in today's
call.
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.
This communication contains statements that constitute forward-
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Litigation Reform Act of 1995. Investors are cautioned that any
such forward-looking statements are not guarantees of future
performance or results and involve risks and uncertainties, and
that actual results or developments may differ materially from
those in the forward-looking statements as a result of various
factors, including financial community and rating agency perceptions
of the company and its business, operations, financial condition
and the industry in which it operates and the factors described
in the company's filings with the Securities and Exchange Commission,
including the sections entitled "Risk Factors" and "Management's
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 Electronics Corporation ("Hughes") will file relevant
materials with the Securities and Exchange Commission ("SEC"),
including one or more registration statement(s) that contain
a prospectus and proxy/consent solicitation statement.
Investors and security holders are urged to read these
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or supplements to those documents, because they will contain
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