Assignment

OF
Corporate Restructuring
TOPIC:-Merger Between Direct TV and
News Corporation

Submitted to: Submitted by:

Ms. Dalwinder Kaur Rupesh Tiwari

Roll No.-A13
Reg. No.-
10906905
MBA IB

LOVELY PROFESSIONAL UNIVERSITY

About The DIRECTV

The DIRECTV Group, Inc. (NYSE: DTV) is a world-leading provider of digital multichannel
television entertainment, broadband satellite networks and services. The DIRECTV Group, Inc. is
34 percent owned by Fox Entertainment Group, which is approximately 82 percent owned by
News Corporation Ltd.

About News Corp.

The News Corporation Limited (NYSE: NWS, NWS.A; ASX: NCP, NCPDP) had total assets as
of June 30, 2004 of approximately US$52 billion and total annual revenues of approximately
US$21 billion. News Corporation is a diversified international media and entertainment company
with operations in eight industry segments: filmed entertainment; television; cable network
programming; direct broadcast satellite television; magazines and inserts; newspapers; book
publishing; and other. The activities of News Corporation are conducted principally in the United
States, Continental Europe, the United Kingdom, Australia, Asia and the Pacific Basin.
Motives For Merger and Acquisitions

• Sky Brasil and DIRECTV Brasil will merge, and DIRECTV Brasil customers will migrate
to Sky Brasil. The DIRECTV Group will acquire the interests of News Corp. and Liberty
Media in Sky Brasil.
• DIRECTV affiliate Galaxy Mexico will close its operations and sell its subscriber list to
Sky Mexico. DIRECTV customers in Mexico will be offered the opportunity to migrate to
Sky Mexico. The DIRECTV Group will acquire the interest of News Corp and jointly with
Televisa, the interest of Liberty Media in Sky Mexico.
• The DIRECTV Group will acquire the interests of Globo, Televisa, News Corp. and
Liberty Media in Sky Multi-Country Partners, which has DTH platforms in Colombia and
Chile. Sky customers in Colombia and Chile will migrate to DIRECTV.
The transactions are designed to ensure the long-term success of DIRECTV Latin
America, which is 86 percent owned by The DIRECTV Group, and Sky Latin America by
consolidating the two DTH platforms into a single platform in each of the major territories
served in the region. In aggregate, The DIRECTV Group is paying $579 million in cash
 for the equity stakes in the Sky platforms.

Other Latin American Territories

Following the acquisition by DIRECTV of News Corp.’s, Globo’s, Televisa’s and Liberty Media’s
interests in Sky Multi-Country Partners, Sky Multi-Country’s businesses will merge with
DIRECTV in Chile and Colombia. Upon completion of the acquisition, DIRECTV will own 100
percent of Sky Multi-Country and Sky customers in Colombia and Chile will migrate to
DIRECTV, and DIRECTV will service both countries from a single DTH platform. This
transaction is subject to regulatory approval in Colombia. There are approximately 89,000 Sky
subscribers in Chile and Colombia. The DIRECTV Group will operate its DTH platforms in
Colombia and Chile, as well as in Argentina, Venezuela, Puerto Rico, the Caribbean and the rest
of Latin America, under the newly-created “PanAmericana” platform. Following the acquisition
of the Sky Multi-Country business, the PanAmericana platform will have approximately 938,000
subscribers.

Regulatories Issues In Merger

• A unit of Venezuela's Cisneros Group that holds a minority stake in DirecTV Latin
America has sued News Corp. in an attempt to thwart the merger of the satellite-TV
service with the News Corp.-owned competitor Sky Latin America.

• Darlene Investments, a Cisneros affiliate that owns 14.1 percent of DirecTV Latin America
together with another company, alleges that News Corp. and DirecTV have been
systematically "bleeding value" from DirecTV's Latin unit in anticipation of the merger.

• The goal, the 68-page suit states, is to "create exorbitant and hidden profits" for News
Corp. and DirecTV at Darlene's expense while secretly planning to combine their Latin
American operations .

• Darlene also charges that DirecTV has engaged in a series of self-dealing transactions with
 its Latin unit since its inception and that the parent company is at least partially
responsible for pushing the unit into Chapter 11 bankruptcy in 2003.

• When DirecTV Latin America emerged from bankruptcy this year, Darlene alleges, News
Corp. and DirecTV lied to it and the court, saying they planned to keep the Latin unit as a
freestanding, viable company when they had already developed a merger plan.

• DirecTV and News Corp. announced that they were combining their Latin American
operations in a series of deals that would compensate Sky's Latin partners, including
Grupo Televisa of Mexico and Globo of Brazil, for $579 million cash.
• Compensating the partners was a key issue for News Corp., the suit says, because News
Corp. acquired a 34 percent stake in DirecTV last December, putting it in breach of no-
compete and exclusivity agreements with those companies .

• Darlene, which voted against the merger, said the deals vastly undervalued DirecTV Latin
America's assets, giving it a far lesser stake in the combined Sky/DirecTV unit.

• Six investment banks and advisors valued the company at more than $1 billion, while the
value of the transaction totaled only $217 million, states the suit, filed in Miami-Dade
Circuit Court.

Factors In Favour Of Merger

If competition in the multichannel video market had performed up to its hope and hype, the
NewsCorp./Fox/DirecTV merger might not be so threatening. But in light of the failure of
deregulation, it presents a problem for public policy that cannot be ignored. There are two
points of power in the marketplace – distribution and program production
.
The reach of News Corp./Fox's media empire is truly staggering. The following are
highlights of some News Corp./Fox properties in the U.S.:

• Broadcast Television Stations (35 stations, including two broadcast stations in New York,
 Los Angeles, Dallas, Washington DC, Houston, Minneapolis, Phoenix and Orlando)

• Filmed Entertainment (20th Century Fox Film Corp., Fox 2000 Pictures, Fox Searchlight
Pictures, Fox Music, 20th Century Fox Home Entertainment, Fox Interactive, 20th Century
Fox Television, Fox Television Studios, 20th Television, Regency Television and Blue Sky
Studios)

• Cable Network Programming (Fox News Channel—the most watched cable news channel,
Fox Kids Channel, FX, Fox Movie Channel, Fox Sports Networks, Fox Regional Sports
Networks, Fox Sports World, Speed Channel, Golf Channel, Fox Pan American Sports,
National Geographic Channel, and the Heath Network) Publishing (New York Post, the
Weekly Standard, HarperCollins Publishers, Regan Books, Amistad Press, William
Morrow & Co., Avon Books, and Gemstar – TV Guide International)

• Sports Teams and Stadiums (Los Angeles Dodgers, and partial ownership in the New York
Knicks, New York Rangers, LA Kings, LA Lakers, Dodger Stadium, Staples Center, and
Madison Square Garden) With DirecTV, Mr. Murdoch can start a new channel with
immediate access to its subscribers, currently 11 million. He has other leverage in Fox
News, now the most popular cable news channel, and essential local stations in most major
markets around the country

Factors Against The Merger

The merger between News Corp./Fox and DirecTV is extremely unlikely to stop skyrocketing
cable rates and could very well exacerbate the problem. According to David Kirkpatrick’s New
York Times article:7

• some analysts said the structure of the deal suggested Mr. Murdoch hoped to use DirecTV
mainly to punish other pay television companies and benefit his programming businesses.
The Fox Entertainment Group, an 80 percent-owned subsidiary of News Corporation, will
own a 34 percent stake in DirecTV’s parent, creating the potential for programming deals
that favor Fox over DirecTV.
 • ‘My sense is that the major purpose for News Corporation controlling DirecTV is to use it
as a tactical weapon against the cable companies to get them to pay up for its proprietary
programming,’ said Robert Kaimowitz, chief executive of the investment fund Bull Path
Capital Management.

Post Merger Scenario

• Shares of News Corp. rose 15 cents, or 0.8 percent to close at $19.53.

Liberty Interactive's stock closed down 41 cents, or 2.7 percent, at $15.08 a share while
Liberty Capital's stock rose $1.35, or 1 percent, to $118.70 a share.

• News Corp./Fox’s merger with DirecTV adds a new, nationwide television distribution
system to News Corp./Fox’s programming/production arsenal. DirecTV is the nation’s
largest satellite television distribution system, with more than 11 million customers and the
ability to serve all communities in the UnitedStates.

Present Scenario Of That Merger

News Corporation swap its 38% stakes in DirecTV and other unspecified assets in exchange
for Liberty Media's 19% share of Rupert Murdoch's media giant in order to mitigate uncertainty
and overhang.

References:

• http://www.denverpost.com/business/ci_8382649

• http://www.denverpost.com/ci_8382649?source=rss

• http://www.newscorp.com/news/news_454.html

• http://www.newscorp.com/news/news_221.html