AOL Time Warner sells Hughes stake

The battle between Rupert Murdoch and his US arch-rival Charlie Ergen to seize control of America's satellite TV market took another turn last night when AOL Time Warner sold a key stake in Hughes Electronics, the satellite broadcaster both men are pursuing.

The sale of the 8.4% stake removes an obstacle in the quest of Mr Murdoch's News Corporation and Mr Ergen's Echostar Communications to take control of Hughes, the parent company of DirecTV, the largest pay TV satellite broadcaster in the US.

Hughes, which is controlled by General Motors, has reached agreements with News Corp and Echostar in the past two years but both deals fell through.

The most recent reports have suggested Mr Murdoch and Mr Ergen are now discussing a joint bid for Hughes, although no deal appears imminent.

AOL Time Warner sold its Hughes holding for about £500m to US stockbroker Bank of America, which is expected to put the block of shares up for sale.

The sale is part of AOL Time Warner's strategy to reduce its £16.25bn debt mountain and comes ahead of the media giant's fourth quarter results announcement later today.

News Corp would have appeared the obvious buyer for the stake, which would allow Mr Murdoch to increase his leverage in his discussions with Echostar for control of Hughes' satellite network.

Mr Murdoch's lieutenants have repeatedly poured cold water on claims he has designs on Hughes but New York analysts believe he remains firmly interested in reviving a bid for the coast-to-coast satellite TV network.

Mr Ergen is one of the few men to have out-gambled Mr Murdoch, defeating him last year in the battle for the control of Hughes.

However, the deal went sour after the Federal Communications Commission indicated it would block the deal on competition grounds.

Echostar's crippling debt is thought to have precluded it from moving on the AOL Time Warner stake.

The Hughes shares were sold in a block trade late yesterday in New York, when Hughes shares were trading at $10.45.

At that price the stake was worth £523m, although the sale price is likely to have been lower.

The sale price was almost the lowest at which Hughes shares have traded in the past 12 months and should have been compelling for either Mr Murdoch or Mr Ergen.

AOL Time Warner's decision to sell the stake now, rather than wait for a value enhancing deal, was read by analysts as a sign the group needs to move urgently to reduce its debt.

However, the sale could also reflect the media giant's belief that a Hughes deal from either Mr Murdoch, Mr Ergen or both could take a long time.

Richard Parsons, the chief executive and chairman of AOL Time Warner, is expected to outline further debt reduction initiatives, perhaps including the sale of AOL's book publishing division, when he releases the group's fourth quarter results later today.

The Hughes stake was acquired in 1999 by America Online before its groundbreaking merger with Time Warner.

Hughes was to deliver America Online's high-speed internet services to TV sets via satellite as part of the deal.

Hughes committed to spend $1.5bn on developing and promoting the service but recently disclosed it had only spent $500m three years after the original agreement.