News Corp., Liberty Media Set Satellite Stake Swap

John Malone and Rupert Murdoch are getting cuddlier than ever, and their latest deal could land them a juicy prize.

Murdoch's News Corp. (NWS) said Wednesday that Malone's Liberty Media (LMG.A) will increase its stake in News Corp. as well buy a $500 million stake in Sky Global Networks, the News Corp. subsidiary that houses the company's global satellite holdings. The $500 million stake represents nearly 5% of Sky Global, which is expected to go public before the end of the year.

Wednesday's announcement confirms a deal that analysts have been jabbering about for the last week or so and could lay the groundwork for Murdoch's bid for General Motors' (GM) Hughes Electronics (GMH) unit, which owns DirecTV, the leading satellite TV provider in the U.S.

Complicated

Under the terms of the complicated deal, News Corp. will acquire Liberty's 21% stake in Gemstar-TV Guide International (GMST), increasing News Corp.'s stake in the TV programming guide company to 43% and making it Gemstar's single largest shareholder. In exchange for the Gemstar shares, Liberty will get 121.5 million American depository receipts in News Corp., which represent 486 million shares of News Corp.'s preferred limited voting ordinary shares. Liberty, which currently owns 8% of News Corp., will own 21% of the company should Wednesday's deal close, making it the company's largest shareholder outside the Murdoch clan.

"We have enjoyed a long, productive and mutually beneficial relationship with Liberty Media and Dr. John Malone, one of the giants of the media industry," Murdoch, the chairman and chief executive of News Corp., said in a statement. "That John has chosen to become our single largest nonvoting equity owner is as strong an endorsement as we could get of our strategic direction and operational performance."

By gaining hold more Gemstar shares, Murdoch could have more flexibility in making a deal for DirecTV. It had been unclear whether GM would accept Sky Global shares for Hughes, which analysts say could fetch as much as $60 billion. GM reportedly wants a mix of cash and stock for Hughes, and for tax issues, Hughes needs to retain a 51% economic interest in any transaction.

Two Goals

By adding more assets to Sky Global -- 20% of Liberty Media's holdings in Gemstar will go to Sky Global under the terms of Wednesday's announcement -- Murdoch accomplishes two goals. He makes it more attractive to Wall Street, and he helps keep News Corp.'s stake in Sky Global from falling below 50% should it consummate a deal for DirecTV.

Wall Street applauded the news. News Corp. shares jumped $1.69, or 3%, to $55.50, Gemstar rose $3.50, or 5%, to $72.06 and Liberty, an AT&T(T) tracking stock, rose 44 cents to $18.81.

The deals require regulatory and other customary approvals. News Corp. said the Gemstar swap is expected to close by the end of the year; the other aspects of the deal will close once Sky Global goes public.

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