The news report last week sounded unbelievable: Rupert Murdoch's News Corp. wanted to buy General Motors to get at its Hughes Electronics Corp. subsidiary.
Bart Simpson, News Corp.'s most recognizable TV character, taking on the world's largest industrial corporation? Aye carumba!
News Corp. says it's not happening. Yet in today's ravenous dot-com world, where America Online Inc. can devour giant Time Warner Inc., a hostile takeover of GM is not out of the question.
The magnitude of acquisition deals today 'has completely blown away the expectations of the past,' says Rajesh Kothari, an automotive mergers and acquisition expert at GMA Capital LLC in Farmington Hills, Mich.
HUNGRY FOR THE WEB
The market value of GM stock last week was $52 billion, compared with America Online's $165 billion. Wall Street's hunger for Internet and communications stocks could conceivably allow News Corp. to assemble the financial strength to take a run at GM.
For at least a day, investors appeared to believe the News Corp.-GM story. GM's stock price last Thursday, March 23, shot up $5.25 to $87. The price per share for GM's Hughes tracking stock rose $11.44 to $135.88 the same day. The tracking stock entitles holders to Hughes' profits but not its assets.
News Corp. called that day's CNBC news report 'entirely false and without merit,' and GM and Hughes stock dropped on Friday. But Kothari and others believe acquisition rumors surrounding GM and other auto companies will continue.
'Look at their valuations relative to what is happening elsewhere in the marketplace,' Kothari said. The stock market's focus on hot Internet companies has caused the market value of automakers and suppliers to plummet, making them relatively cheap acquisition targets, he said.
BIG FISH TO SWALLOW
Even so, Kothari and other analysts, including John Casesa at Merrill Lynch, believe undervalued GM is still too big to attract serious buyers.
Casesa says GM has considerable financial and political muscle, including its link to the UAW, to fight takeover attempts. 'The idea of News Corp. buying GM and splitting up the company is not credible at all,' Casesa said.
Clearly, Hughes' successful DirecTV satellite television business, as well as its other satellite properties, has hungry communications companies such as News Corp. salivating. A more feasible approach for those companies would be to negotiate a deal with GM to buy Hughes.
But even then, Casesa is skeptical.
Casesa believes GM sees more value in Hughes. 'It will hold on to some ownership of Hughes until it believes all of its value is realized.'