Murdoch raises $1.3bn on BSkyB

Rupert Murdoch's News Corporation could dilute its stake in BSkyB as a means of raising cash to fund a bid for Hughes Electronics, the parent company of US satellite broadcaster DirecTV.

In a sign of the seriousness of Mr Murdoch's intent, News Corp said it would raise $1.35bn (£860m) through a bond convertible into BSkyB shares one year after issue. Analysts said News Corp could possibly see its stake in the pay-TV business reduced from 35.4 per cent to around 30 per cent.

News Corp said it would use $715m of the proceeds to refinance existing debt and take advantage of low interest rates. The balance of $635m could then be added to News Corp's cash pile of $3.1bn and used to help finance the Hughes bid. The bond could go up to $1.5bn, depending on demand.

News Corp is expected to make an offer for the 20 per cent in Hughes made available by General Motors. The other 10 per cent held by GM has been put into its pension fund.

BSkyB will not be offering new stock to back the bond, which means News Corp would offer part of its own stake if it decides to pay it back in shares. But News Corp has retained the option to pay it back in cash - an option that many analysts expect Mr Murdoch to favour.

"I think you can assume it's not likely that Murdoch is going to want to reduce his stake in BSkyB," said one source involved in the bond. "If the company has the financial wherewithal then it is not expecting to use stock."

Shares in BSkyB fell by up to 5.8 per cent on news of the bond but recovered by noon. Investors were relieved Mr Murdoch was merely refinancing an old bond issued in 1996 rather than mortgaging more shares.

Kingsley Wilson, an analyst at Investec Securities, said: "Murdoch has said he won't sell any Sky shares, but people are wondering what he's up to and are a bit spooked. It's a sentiment thing, really."

News Corp failed in a previous attempt to buy Hughes, losing to US rival Echostar.