HUGHES’ SMITH MUM ON MERGER INTO NEWS CORP.

News Corp. is said to have sweetened its bid by scaling back its ownership of merged company to 30% from 35% it had proposed. It also pulled some proposed assets off table, including Italian pay-TV service Stream. Under proposal being discussed, GM would get $7.2 billion in cash and notes -- less than $8 billion it had sought -- by redeeming majority of its 30% interest. How much of stake GM will redeem will depend on how Hughes stock trades. GM wants to keep small stake in company, which is expected to have market capitalization of $50 billion. Deal would give News Corp. access to one of Hughes’s most valuable assets -- DirecTV, which has 9.8 million subscribers to U.S. satellite service and 1.4 million to similar operation in Latin America. News Corp. has no satellite presence in U.S. despite attempts to start own American Sky Bcstg. (ASkyB) and later combine business with EchoStar. It operates Sky Latin America.

Microsoft and Liberty Media are expected to add $3 billion and $1 billion in cash, respectively. Remaining $3.2 billion for GM would come from Hughes. Microsoft and Liberty investments would give them 10% of combined entity. Microsoft declined comment and GM spokeswoman said that while discussions with News Corp. didn’t represent “exclusive negotiating arrangement, it is certainly where we are going to focus our attention.”

Industry observers said, however, that intensified negotiations by Hughes and News Corp. could force EchoStar to enter fray. EchoStar indicated in quarterly report to SEC that DirecTV had rejected overtures it made to GM to merge with all or parts of Hughes. In separate FCC filing, EchoStar said existing DBS spectrum is too constrained to compete with cable and consolidation would level playing field. After proposed merger with News Corp.’s (ASkyB) collapsed in 1997, EchoStar filed breach of contract suit. It later fought against News Corp.’s proposed merger of ASkyB assets with Primestar, which also collapsed before latter was acquired by Hughes Electronics.

“DirecTV would be better positioned against digital cable if the satellite spectrum was combined,” SG Cowen analyst Robert Kaimowitz said. While EchoStar would need to raise substantial sum to match News Corp.’s offer for Hughes, CEO Charles Ergen “has made so much money for so many people that he would be able to get whatever he wanted at this stage,” Kaimowitz said. EchoStar officials weren’t available for comment.

Potential deal with News Corp. could spend spell end of process that began last summer when GM decided to spin off Hughes. Smith was charged with rounding up bids and approached 18 companies, Wall St. Journal reported Wed. But most of those approached were willing to discuss only minority stakes and few were interested in GM’s desire for tax-free reverse merger, Journal said. GM later took over search for Hughes suitor and in Feb. reached handshake agreement with News Corp. that would have created publicly traded company owned 64% or 65% by Hughes shareholders.

Possible merger with News Corp. probably would change Hughes’s strategy “very significantly” as it became part of global company with worldwide satellite assets, said Pegasus CEO Marshall Pagon, whose company sells DirecTV service in rural U.S. “It would be very good because you would have a company with a totally different focus that is global and on media,” he said, noting News Corp.’s substantial programming and film assets.

Meanwhile, Loral Space & Communications CEO Bernard Schwartz said that company’s satellite-making unit wasn’t for sale despite industry reports that Loral had approached Lockheed Martin about possible deal. Space Systems Loral (SSL) has reported bookings for 6-7 satellites this year, but its first-quarter revenue fell 19% and it said there was only one order for new bird in quarter. It has forecast flat manufacturing revenue through end of year.

Schwartz also scoffed at breach-of-contract suit filed against Loral by former joint venture partner Alcatel. Loral earlier this year served Alcatel with notice that it would terminate agreement effective Feb. 2002. Alcatel and Loral previously had joint venture in which former would provide satellite payload while latter supplied bus. Loral moved to end agreement, which included sharing of data, after increasingly finding Alcatel to be competitor rather than partner, Schwartz said.

Schwartz also moved to distance company from faltering Globalstar satellite telephone service, saying it would sharpen focus on satellite services and manufacturing and avoid “high-risk deployment initiatives.” Loral wrote off all but $34 million of more than $1.3 billion it had invested in Globalstar and won’t spend any more money seeking to revive it, Schwartz said.

“The synergy value between the hardware and the services they provide works very well,” Schwartz said. “As long as both are profitable with growth possibilities, it will have significant value and distinguish us from the competition.”

SSL will continue to build triband satellites capable of delivering C-, Ku- and Ka-band services, Schwartz said. First of such satellites, Telstar-8, is expected to launch in mid-2002, followed by Telstar 9 in first quarter 2004. Among customers for Ka-band satellite is Wildblue, which is developing Internet access service and includes EchoStar among its investors.

Loral currently has 74% utilization on fleet of 10 satellites, which will increase to 80% by year-end, Schwartz said. It expects to hit 90% before launch of Ka-band satellite in mid- 2002, he said. Loral currently includes ABC-TV, CBS-TV and Fox among its satellite customers and is seeking to expand into cable and data services, Schwartz said. -- Mark Seavy

Conference Notes…

Agere (formerly Lucent Digital) will have “commercial spin” of chipset for Sirius Satellite DARs receivers by Aug., CEO David Margolese said. Chipset will compete “neck and neck” with discrete version being built by Matsushita for introduction in receivers late this year, he said. Chipset will be key as Sirius continues negotiations with Daimler Chrysler and Ford on including small number of Sirius receivers as option in cars by late this year, Margolese said. To get product to market, he said, Sirius will provide subsidy, most likely in form of giving car makers part of $9.95 monthly service fee. DARs system at outset will be sold as option with cars, but goal is to have cost built into sticker price, which will require that chipset “gets cheap enough so that it is installed [at factory level],” he said. Chipset currently is priced at $50. He said trunk-mounted module that would be step toward interoperability of Sirius and XM Satellite systems remained on target for 2002 and would be available in Audi, Nissan and Honda vehicles. Fully interoperable system won’t be introduced for 3-5 years.

----

Pegasus Communications has signed up “slightly less than” 1,000 subscribers since starting sales last month of DirecPC 2-way satellite Internet access service, CEO Marshall Pagon said. About 90% of subscribers are outside Pegasus’s rural sales territories, and company is weighing introducing service in Canada, he said. Pegasus also is said to have signed distribution agreement for DirecPC service with Tweeter Home Entertainment and delivered small quantities of product to chain’s Hi-Fi Buys stores in Atlanta area. Pagon declined comment on possible agreement.

----

SES Astra is weighing several options for 17% stake in Starband that it inherited with proposed acquisition of GE Americom, including increasing it, SES Americas Exec. Rep. Dean Olmstead said. SES has formed group to study plans for Starband and may consider switching Internet access service to Astra Net platform that’s used elsewhere in world, he said. SES’s purchase of GE Americom is expected to close by Oct.