Satellite TV deal to merge leaders

The $25.8-billion marriage of DirecTV and Dish Network will be met with intense scrutiny by regulators.

By TIMES WIRES

© St. Petersburg Times,
published October 30, 2001

EchoStar Communications is buying Hughes Electronics and its DirecTV subsidiary for approximately $25.8-billion in a deal that would unite the nation's two leading satellite TV providers.

The bid by the parent company of Dish Network faces an uphill fight with antitrust regulators, industry analysts concluded Monday. EchoStar and Hughes, a unit of General Motors, would control 91 percent of the U.S. satellite TV market, or nearly 17-million viewers, if the deal is approved. Three-million of those viewers are subscribers in rural areas with no cable TV service.

Executives of EchoStar and GM acknowledged the deal, reached Sunday, faces regulatory hurdles, but said they think it will stand up to scrutiny.

"We've looked at this every way you can look it," EchoStar chairman Charles Ergen said. "The transaction itself is going to create a true competitor to cable."

Rather than paint the deal as a merger of the top two satellite TV providers, EchoStar and GM prefer to characterize it as a combination of the third- and seventh-largest companies in a "subscription TV" industry that includes AT&T Broadband, Time Warner and Comcast. The combined Dish-DirecTV, which would keep the DirecTV brand name, would eclipse AT&T, which has 13.5-million subscribers, as the biggest company in paid TV.

Ergen said the new company would be able to drive down costs by sharing satellite spectrum, bargaining for lower programming costs, and having one standard for set-top boxes.

But investors and analysts remained skeptical. EchoStar shares fell $1.18 to $24.08 Monday, while shares in GM's Hughes tracking stock dropped 99 cents to $14.36. GM shares slid $2.64 to $42.76.

"Satellite TV is in the same market with the cable people," said Bert Foer, president of American Antitrust Institute, a Washington nonprofit advocacy organization."But I don't think that answers the question, which is, would you rather have three competitors in most markets or two?"

The deal awaits approval by GM shareholders and by the Federal Communications Commission and other agencies.

"I would handicap it at less than a 50 percent chance of getting the government approvals it requires," said Philip Verveer, a partner at Wilkie, Farr and Gallagher who specializes in antitrust and telecommunications law. "It's going to be a tough sell."

Under terms of the deal, GM would technically spin off Hughes and merge it with EchoStar. A majority of EchoStar's shareholders have given their approval to the deal through written consent, according to a statement.

EchoStar is offering 0.73 EchoStar shares for each share of Hughes. Based on EchoStar's closing stock price Friday of $25.26, the deal values each share of Hughes at $18.44 -- a 20 percent premium to Hughes's closing share price of $15.35.

EchoStar is also offering a $600-million breakup fee to Hughes in the event that the deal is turned down by regulators.

Aside from DirecTV, Hughes also provides high-speed Internet service through DirecPC and its PanAmSat unit distributes entertainment and information to cable television systems, TV broadcast affiliates, telecommunication companies and corporations.

In the statement announcing the deal, EchoStar and Hughes said the merger would not cause a disruption of service or additional expense for current subscribers to either DirecTV or Dish Network.

GM had been anxious to sell off Hughes in order to focus more fully on its core automotive business. Murdoch and GM had been in talks for more than 18 months, but when the automaker's board failed to make a decision on Saturday, Murdoch ended his bid for the company.

Murdoch coveted DirecTV as an adjunct to the satellite TV services News Corp. operates overseas. Acquiring DirecTV would have given him a global satellite television network. EchoStar came into the picture last spring, with the company proposing a stock swap and assumption of almost $2-billion in debt for Hughes over the summer.

Despite its market-leading position with DirecTV, Hughes lost $227.2-million in the third quarter and $481.6-million through the first nine months of the year. The company announced plans in August to lay off 10 percent of its 7,900 workers.

-- Information from the Boston Globe, Chicago Tribune and Associated Pres was used in this report.

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