Liberty helps rival bid for Hughes

Liberty Media has backed away from challenging Rupert Murdoch's News Corporation in a bid for Hughes Corporation, the parent company of DirecTV, the biggest satellite television network in the US.

John Malone, the prolific media investor who runs Liberty, has instead decided to back Mr Murdoch's bid, and increase his own stake in News Corp from 17.5% to 19%.

Liberty is already the largest outside shareholder in News Corp, whose assets include the Times and the Sun newspapers, the Fox TV network and a controlling stake in BSkyB.

Liberty will pay $500m (£318m) for the additional shares, which will help fund the Hughes bid.

News Corp last week issued a $1.35bn convertible bond against shares in BSkyB, of which roughly half will be added to its war chest. The company has one of the strongest balance sheets in the debt-ridden media sector and has around $3.1bn in cash.

Liberty and News Corp had been planning a joint bid for Hughes but the plans fell apart and both were considering individual offers.

Mr Malone has been shifting the strategy of Liberty and is moving more toward owning and operating businesses instead of being a passive investor.

The company might have considered DirecTV a more logical fit with News Corp, which owns cable channels in the US as well as satellite net works around the world, including Star TV in Asia.

The decision to work with Mr Murdoch also quashes speculation of a rift between the two media moguls who have worked in tandem on many deals.

Liberty's decision to back away significantly improves the chances that News Corp will win Hughes, fulfilling Mr Murdoch's long-held ambition to own a US distribution network.

In the first auction for Hughes, more than a year ago, Mr Murdoch lost to DirecTV's rival EchoStar. But regulators balked at the merger of the top two satellite providers in the US and blocked the deal.

News Corp could face opposition from SBC Communications, but it remains unclear how serious the local telephone provider is about making an offer.

Liberty is understood to have held discussions with EchoStar about a possible bid. Like News Corp, Liberty owns content including the Discovery Channel, Starz and QVC and is eager to combine its programming with a distribution network. Washington might take a dim view on a deal, given Liberty's investment in News Corp.

Mr Murdoch has appeared to be interested only in acquiring the 20% of Hughes that General Motors is making available for sale. How much control that would give Mr Murdoch or Mr Malone, who may have negotiated some kind of board representation, is debatable.