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©Los Angeles Times
© St. Petersburg Times, published August 7, 2001
EchoStar Communications Corp.'s unsolicited offer for Hughes Electronics Corp. fails to meet key criteria set forth by parent company General Motors Corp. and faces potentially onerous regulatory risks, leading some analysts and industry insiders to largely dismiss the $30-billion takeover proposal.
EchoStar's top executive, Charles Ergen, acknowledged Monday that the company's unsolicited bid is sure to generate intense scrutiny by federal antitrust regulators. But a merger of the nation's two largest satellite television providers would likely be approved -- if the government considers cable television operators as competitors of the combined company, he said.
"Cable rates are going up two or three times the rate of inflation," Ergen, EchoStar's chairman and chief executive, told reporters in a conference call. "The only way that's going to stop is to have a strong satellite operator to compete with those folks."
Hughes' DirecTV, with more than 10-million subscribers, is the nation's largest satellite-television broadcaster. EchoStar, based in the Denver suburb of Littleton, Colo., has nearly 6.1-million subscribers. Under the proposed merger, EchoStar would control the resulting company, which would reach more than 90 percent of all satellite households.
The combined company would be slightly larger than the country's largest cable operator, AT&T Broadband, which has 16-million subscribers. But it would rank a distant second if AT&T accepts one of a number of merger offers from other cable operators now trying to buy the broadband division.
Analysts had mixed opinions on whether Ergen's argument about competition with the cable industry would resonate with government regulators.
"I believe that Ergen potentially has a valid argument, but no matter what, the regulators may see it a different way," said Peter Kreisky, a media industry consultant with Mercer Management Consulting in Boston.
In active trading Monday, EchoStar shares were driven lower, while Hughes shares increased -- but short of the price mark set by the proposal. That led many to conclude that EchoStar's bid is not taken seriously by the investment community.
Analysts said News Corp., which has been negotiating with GM to take over Hughes for nearly a year, remains at the forefront of merger talks.
Yet Wall Street investors and analysts said EchoStar's Sunday bid could complicate prolonged merger talks that have already dragged down Hughes' performance and could even force News Corp. to accelerate its transaction.
"EchoStar's offer does give GM/Hughes more leverage to extract concessions from News Corp. in their ongoing merger negotiations, which is good news for GM/Hughes shareholders," according to a report Monday by Blair Levin, an analyst at Legg Mason.
But he wrote that the Echo-Star-Hughes combination would face greater regulatory hurdles than a News Corp. transaction, "justifying not only a higher premium, but also some form of indemnification if the deal is blocked."
EchoStar's all-stock offer gave Hughes shareholders a 15 percent premium over Friday's closing price. But that premium narrowed to 8 percent Monday, cutting about $600-million in value from the deal, as investors punished EchoStar shares.
Shares of the nation's second-ranked satellite TV provider fell $1.65 on Monday, to $28.79, down 5.4 percent. Shares of Hughes, which owns satellite leader DirecTV, rose a meager 3.5 percent to close at $20.04. That is below the $22.83 a share that EchoStar's bid placed on the Hughes shares.
American depositary receipts of News Corp., which proposes merging DirecTV with its own satellite assets, fell 2 percent, to $37.45 on the New York Stock Exchange.
Underscoring the shortcomings of EchoStar's offer, Ergen acknowledged Monday that he would consider adding some cash to the deal.
EchoStar has offered 0.75 share for each Hughes share, with no cash component. News Corp.'s offer, which had been slated to be announced late this month, includes more than $5-billion in cash.
"If GM said to us, "We like this deal, but we need to see some cash,' we would certainly be willing to revisit that issue with them," Ergen told analysts in the conference call on Monday.
Ergen said EchoStar had been in talks with GM about buying Hughes as recently as several months ago, but that hopes of a friendly merger fell apart several weeks ago.
"We were informed they were not enthusiastic about the deal," Ergen told reporters.
The GM board is expected today to review EchoStar's proposal, while getting an update on the News Corp. transaction, the Los Angeles Times reported. Ergen may have pulled the trigger on his bid Sunday to put a wrench in any plan by the GM board to approve the News Corp. transaction at today's regularly scheduled meeting.
-- Information from the Associated Press was used in this report.