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Indirectly after DirecTV

John Malone and Rupert Murdoch strengthened their companies' ties last week in a move largely seen as a prelude to a bid by News Corp. for DirecTV owner Hughes Electronics.

DirecTV would be the crown jewel in News Corp.'s collection of worldwide satellite-program-distribution assets, which are being spun-off as a separate publicly traded company, Sky Global Networks, later this year.

General Motors confirms that it is exploring a possible sale of Hughes. Its bankers are said to have contacted News Corp., Disney, Sony, Viacom and Vivendi about possible interest.

During a conference call last week with reporters and analysts, News Corp. Chairman Murdoch confirmed that "we would be interested if General Motors decided to do anything" to dispose of its Hughes Electronics subsidiary.

News Corp.'s stock price got a nice bump last Wednesday, when it announced that Liberty Media agreed to swap its holdings in Gemstar-TV Guide for roughly an additional 11% of the Australian-based media conglomerate, as well as a 4.76% stake in the soon-to-be-spun-off Sky Global Networks.

In addition, Liberty will spend $500 million to acquire roughly another 1% of Sky Global Networks at the time of the initial public offering.

News Corp. will up its stake in Gemstar-TVG to 43% as a result of the deal. Its Gemstar-TVG holdings will be transferred to the Sky Global Networks subsidiary. Gemstar-TVG, headed by Henry Yuen, is now negotiating with News Corp. to put its electronic-program guides on News Corp. satellite services worldwide. Up to now, Gemstar has not been on any of those services.

Murdoch said the deal gives News Corp. "an opportunity to move to a controlling ownership of that company in the future, as well as a greater stake in what we believe will be a great growth asset as broadband services and interactive television become common in households around the world." He likened Gemstar's electronic-program guide to a broadband "portal" that has growth potential similar to narrow-band portals Yahoo and AOL.

Murdoch estimated the total value of Sky Global Networks to be in the $40 billion range. It's value would more than double if News Corp. were to make a successful bid for Hughes, which has been valued at between $50 billion and $60 billion.

Under the terms of the Gemstar-TV Guide deal, News Corp. will acquire Liberty's 21% stake in Gemstar. In return, Liberty will receive 486 million preferred non-voting shares in News Corp. That will increase Liberty's ownership interest in News Corp. to 18%, making it the single largest non-voting shareholder and the second largest shareholder overall.

Asked if he will become a member of News Corp.'s board, Malone replied, "that hasn't been determined at this point." Murdoch said the transaction "did not carry any right to appointment [to the board] or anything like that." But, he added, "John's a friend and always has been and always would be welcome on our board. But that would be up to him and us having to watch the regulatory situation."

Asked to what extent he would become involved in News Corp.'s ongoing strategic planning as a result of this deal, Malone replied, "not at all. This is a passive investment position at this point."

Liberty also has small stakes in several Sky Latin America satellite services that are also being transferred to Sky Global Networks as part of the deal.

Asked if the Gemstar deal would effect the timing of the Sky Global Networks public offering, slated for later his year, Murdoch said it did not. "There may be other things that effect the timing. I wouldn't want to guarantee that at the moment."