Murdoch weighs link with US ally Malone

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The Independent Online

Rupert Murdoch is weighing up a complicated stock-swap deal with John Malone, an old ally and a widely respected warhorse in the US cable television industry. If successful, the agreement would catapult Mr Malone into the inner circle of power inside Mr Murdoch's global media empire, News Corporation.

Rupert Murdoch is weighing up a complicated stock-swap deal with John Malone, an old ally and a widely respected warhorse in the US cable television industry. If successful, the agreement would catapult Mr Malone into the inner circle of power inside Mr Murdoch's global media empire, News Corporation.

The negotiations, reported yesterday by The Wall Street Journal, would involve both men investing in each other's companies. Most importantly, Mr Malone could emerge with a 20 per cent stake in News Corp as well as a seat on the board. The Murdoch family currently has 30 per cent of News Corp.

Mr Malone is chairman of Liberty Media, which was formed after the merger of his old company, TCI, a cable-TV giant, with AT&T. In exchange for his new shares in News Corp, Mr Malone would hand over stock in Gemstar TV Guide, itself 20 per cent owned by Liberty.

Such a deal would rekindle speculation about the eventual succession at News Corp in the event of Mr Murdoch's retirement. While both Mr Murdoch's sons, Lachlan and James, have important positions in the company, neither are considered capable of taking the rudder just yet. Most eyes have been on Peter Chernin, one of Mr Murdoch's most trusted lieutenants and the current president of the company.

Taking a stake in Gemstar, which publishes TV guides and develops interactive electronic programme guides, would help Mr Murdoch enhance the value of his nascent Sky Global Networks, which he hopes to take public later this year. It may also boost his ability to buy DirecTV, a satellite TV distribution network in the US owned by the Hughes Electronics division of General Motors.

Mr Murdoch is believed to be coveting DirecTV. Its acquisition would allow him finally to take control of a satellite television operation in the US and fill in a gaping hole in his jigsaw of global assets. A US operation would complement his other satellite television systems around the world, including British Sky Broadcasting. GM signalled several months ago that it was interested in spinning off Hughes Electronics.

It is thought Mr Malone, who already owns 7 per cent of News Corp, would also receive shares in Sky Global. Under the deal, the stake of News Corp in Gemstar TV Guide would rise to 40 per cent.

Mr Malone is not widely known in Britain, but Liberty Media is one of the biggest investors in the fledgling cable sector. TCI was a founding partner in Telewest, now the UK's number two cable company, and under Liberty it retains a 26 per cent interest. Mr Malone also backed the creation of Flextech, the pay-TV thematic channels producer.

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