Finally, a corporate buyout in which L.A. may come out holding the long end of the stick.
Rupert Murdoch’s proposal for his News Corp. Ltd. to acquire Hughes Electronics Corp. and combine it with his Sky Global Networks would create a new $70 billion public company. And that communications behemoth would likely be based in Los Angeles County, making it a serious rival to the Walt Disney Co. for the crown as the highest-valued public company in town. (Disney’s market value as of late last week was $64.7 billion.)
And the combination of Sky Global and Hughes Electronics, which is now a unit of General Motors Corp., would position the combined company for global dominance similar to Disney’s, industry observers said.
“GM doesn’t understand the satellite business,” said Ross DeVol, director of regional studies at the Santa Monica-based Milken Institute. “By merging (Hughes) with Murdoch’s organization, Sky Global Networks, you could build a geographical business and increase the depth of its content.”
Based in El Segundo, Hughes is already the largest satellite TV operator in the United States through its DirecTV operations, with nearly 10 million subscribers. Besides DirecTV, Hughes operates DirecTV Latin America, Hughes Network Systems and PaAmSat Corp., the world’s largest private communications satellite provider.
News Corp. also has a large presence in Los Angeles with 20th Century Fox Studios, the Fox Television Network, the Fox Sports television and radio networks, and the Los Angeles Dodgers.”The fact that Hughes is based here makes this deal more attractive,” said DeVol. “It seems there is a high probability that it will occur.”
Hughes spokesman Richard Dore declined to comment on reports that the two companies would merge by the end of the month.
“There has been a lot of speculation since we announced last year that General Motors and Hughes were going to review the options for Hughes’ future,” said Dore. “We are going to wait until there is a deal that is beneficial to our shareholders, employees and the company.”
News of the proposed merger comes just two months after Century City-based Northrop Grumman Corp. announced that it would pay $5.1 billion in cash to buy Litton Industries Inc., of Woodland Hills. Once that deal closes, the merged company will have a market value of $9.8 billion, based on their respective values as of last week.
DeVol said that, depending upon the structure of the Hughes/Sky Global entity, it would likely be advantageous for Hughes and for the local economy. Everyone from accounting firms to dry cleaners in El Segundo would likely benefit from the merger.
“It’s very good for us,” said Joe Aro, executive director the South Bay Economic Development Partnership. “With the area’s large amount of industrial space and its highly skilled workforce, the region could support any growth Hughes would bring.”
Aro further said that the merger would also help city officials in their efforts to attract other high-profile companies to the area. Besides Hughes, El Segundo is home to Mattel Inc. and Computer Sciences Corp.
On the other hand, analysts expect a merger to have little impact on operations at the 20th Century Fox Studios lot in West Los Angeles. “I doubt we would see additional jobs being created at Fox because the space is already maxed-out,” said Jack Kyser, chief economist with the Los Angeles County Economic Development Corp.
But the deal would nonetheless be significant for Fox and Murdoch’s other L.A. operations.
“This would be a very important marker for News Corp.,” Kyser said. “In the beginning, DirecTV wasn’t viewed by many as a viable business. Now, it would fill a hole for News Corp. and assist Rupert Murdoch in creating a global satellite operation.”
The buyout-spinoff would also benefit the region’s corporate profile.
“It’s certainly important to have a critical mass of companies headquartered in and around Los Angeles for civic and other reasons,” said DeVol. “It also brings attention that the region is still a center of corporate activity.”
Last year, Southern California experienced the sale of some of the area’s most significant and influential locally based public companies.
Besides Northrop acquiring Litton, the Chandler family sold the Los Angeles Times and other holdings of Times Mirror Co. to the Chicago-based Tribune Co. for $6.8 billion, and British oil giant BP Amoco completed its $27.8 billion acquisition of the Atlantic Richfield Co.
