Hughes aims for better results as Eager News Corp. closes in. (Investments & Finance).

WHEN telecommunications giant SBC Communications Inc. last week dropped out of the bidding for Hughes Electronics Corp., apparently leaving News Corp. as the last company standing, the market cheered the news by boosting Hughes' stock to $11.55 per share, its highest level in months.

And yet, the lack of a competing suitor puts Murdoch in the driver's seat and would seemingly limit the premium paid for Hughes.

Given the checkered history of General Motors Corp.'s two-year effort to sell Hughes, no one should be too surprised.

"We believe the value is $14 or $15 a share, but they may not get it," said Tom Burnett, president of Merger Insight, a New York research firm. "The value is there, it's just hard to make a transaction right now."

Speaking at the Milken Institute Global Conference in Beverly Hills last week, Murdoch put the ball squarely in Hughes' court, saying a deal was "just a question of price," while also hinting that News Corp. might not make a formal bid if the price was not right.

That seems unlikely. For one thing, Murdoch has long coveted a U.S. satellite presence that would join his satellite operations in Europe and Asia and serve as a North American distributor for his content companies, such as 20th Century Fox film studio and 20th Century Fox Television.

Secondly, even at a substantial premium on the current share price, Hughes still represents a veritable bargain from when News Corp. first bid on the company two years ago. At that time, Hughes' stock was trading above $20 a share and a deal was valued at more than $25 billion.

That deal was undercut when Hughes' rival EchoStar Communications Corp. trumped it with an 11th-hour bid of its own. The EchoStar proposal was rejected by federal regulators on antitrust grounds, setting off a new round of bidding this year in which SBC, Liberty Media Corp. and Cablevision Systems Inc. all made overtures about acquiring Hughes, only to back away. Liberty, however, has offered to partially back a News Corp. bid.

"I think a final announcement about a sale, probably involving News Corp., is only a couple of months away," said Jimmy Schaeffler, an analyst with Carmel Group. "News Corp. needs it more than the others want it. It's the final jewel in the crown for (Murdoch) in North America."

Direct fixes

A wholly owned subsidiary of GM, El Segundo-based Hughes redesigned its defense satellite operations in the early 1990s to build DirecTV. The company is the largest U.S. provider of satellite television services with more than 11 million subscribers, vs. roughly 8 million subscribers for EchoStar.

DirecTV's president and chief operating officer, Roxanne Austin, said the company has been trying to improve its bottom-line during the past year, operating as if it were not on the block.

This included a round of layoffs that pared 10 percent of DirecTV's workforce and a reorganization of the broadcast operations. Last year DirecTV had the industry's lowest churn rate -- the number of subscribers who cancel the service -- and it claims to rank at the top of pay-television providers in revenue per customer. Also, the company's billing contract was recently renegotiated, a move that will save $50 million a year starting in 2004, Austin said.

By the end of 2003, DirecTV plans to offer local channels in 100 U.S. markets, up from the current 60. A new satellite is to be launched in the fourth quarter to accommodate the expansion, which will make DirecTV available in 84 percent of U.S. households.

"They've refined their entire business model but they have still have a way to go to catch up with EchoStar in terms of reaching financial milestones," Schaeffler said.

Besides DirecTV, Hughes' other major divisions are PanAmSat, an owner and operator of commercial satellites, and Hughes Network Systems, a broadband service that later this year will launch Spaceway, a satellite-based two-way communication system that will initially be marketed to businesses.

Another Hughes' asset, DirecTV Latin America (Hughes owns 75 percent), filed for Chapter 11 bankruptcy protection earlier this month amid a heavy subscriber drain. DirecTV Latin America lost $202 million in 2002.

The company's first quarter report is due to be released April 14.

"There's been a lot of uncertainty and overhang related to the ownership issue," said Austin. "(DirecTV) has been driving growth, but driving it profitability. By any measure, DirecTV is undervalued."

[GRAPH OMITTED]

YEAR (Dec. 31)                    2002     2001

Revenue (billions)                $2.5     $2.3
Operating Expenses (billions)      2.6      2.5
Operating Loss (millions)      (109.8)  (178.6)
Net Loss (millions)            (568.7)  (155.9)
Loss Per Share                 $(0.41)  $(0.12)

SUMMARY

Business: Satellite television and digital services

Headquarters: El Segundo

CEO: Jack Shaw

Market Cap: $10.9 billion

Dividend Yield: NA *

Total Liabilities: $7.3 billion

P/E Ratio: NA **

Long-Term Debt: $2.4 billion

* Company does not pay a dividend

** Company is not profitable