Liberty Out of DirecTV Hunt?

Liberty Media Corp. has effectively dropped out of the bidding for direct-broadcast satellite powerhouse DirecTV Inc., after it announced a deal that would require it to purchase up to $500 million in News Corp. stock within the next six months.

Liberty and News Corp. issued a joint statement late Thursday night announcing the deal. The stock purchase would increase Liberty's holdings in News Corp. from 18 percent to 19 percent.

According to the deal, if Liberty does not exercise its right to buy the shares, News Corp. can force it to buy the stock in the event News Corp. takes an equity stake in Hughes Electronics Corp. — DirecTV's parent — in the next two years.

Liberty was expected to join forces with News Corp. in a bid for DirecTV, the largest direct broadcast satellite provider, with about 11 million subscribers. But in the past few weeks Liberty has said it could launch its own bid for DirecTV, without News Corp.

"Liberty is basically saying that they're not going to bid, that they will participate [in a DirecTV purchase] through their News Corp. stock," said one source familiar with the companies. "They [News Corp.] should all be happy campers."

News Corp. has been the front-runner for the DirecTV assets ever since EchoStar Communications Corp.'s bid for the company was rejected by the Federal Communications Commission in December. News Corp. is expected to make a bid for General Motors Corp.'s 20 percent interest in the DBS provider, estimated to be worth between $3.5 billion to $5 billion. News Corp. already has about $4 billion of cash on its books.

Other potential bidders include SBC Communications Inc. and, according to a Reuters report last Friday, Cablevision Systems Corp. According to Reuters, Cablevision was expected to make a bid along with a consortium of private equity investors, including Quadrangle Group. Cablevision declined to comment on what it called rumor and speculation in the media.

Most analysts said a Cablevision bid for DirecTV would be a bad idea, because it would distract the MSO from its core business.