EchoStar offers $30 billion for Hughes -->
By Reuters
August 5, 2001, 7:00 p.m. PT
NEW YORK--Satellite television provider EchoStar Communications said Sunday it is
making a $30.4 billion stock bid for Hughes Electronics in a move that could trump
rival News Corp. in a battle for Hughes' coveted DirecTV network.
EchoStar is proposing to offer 0.75 of its shares for each Hughes share, valuing Hughes' stock
at about $22.83 per share, an 18 percent premium based on Hughes' closing price Friday.
EchoStar also said it would assume about $1.9 billion in Hughes debt.
EchoStar competes with global media giant News Corp., which seeks to merge DirecTV, the
largest U.S. satellite television broadcaster, with its Sky Global network of satellite services.
Littleton, Colo.-based EchoStar
operates the Dish Network, the
No. 2 U.S. satellite television
service. El Segundo, Calif.-based
Hughes, a unit of automobiles
giant General Motors, has been
negotiating for the sale of DirecTV
since last fall.
Shareholders of General Motors
and Hughes would own about 66
percent of the diluted equity in the
combined company under the
EchoStar bid.
General Motors said in May it had
approved talks between Hughes
and News Corp., controlled by
media mogul Rupert Murdoch and
based in Australia.
General Motors and News Corp. have been engaged in discussions over Hughes for some time
and had negotiations as recently as last week, sources familiar with the situation have said.
EchoStar, meanwhile, said on July 19 that it could not convince the Hughes board to make a
deal.
Representatives for both General Motors and Hughes said their companies had not yet formed
responses to the bid. A News Corp. official in Australia refused to comment.
Jerry Dubrowski, a spokesman for GM, said the "top priority" has been Hughes' negotiations
with News Corp. since May, and he said News Corp. has previously submitted a formal bid for
the GM unit. He declined to describe the terms of that offer.
EchoStar said it has identified massive synergy opportunities valued at about $37 billion, or
$26 per share, for Hughes shareholders and up to $11 billion, or $20 per share, to GM
shareholders.
Possible cost savings from the deal would include reduced programming expenditures resulting
from a larger subscriber base and lower subscriber acquisition costs because of economies of
scale, EchoStar said. Expense cutting could also be derived from the elimination of overlapping
general and administrative costs, the company said.
A spokesman for EchoStar said it was premature to speculate about potential job cuts from an
EchoStar-Hughes deal and the management or board structure of a combined company. He
would not comment about other possible bidders for Hughes.
In a letter to GM Chairman John Smith, EchoStar Chairman and Chief Executive Charles Ergen
said a combination of Hughes and EchoStar could establish a competitive alternative to the
powerful U.S. cable and broadband service providers.
"The combined company's unrivaled satellite network and subscriber base would enable it to
achieve greater profitability than either company would be able to achieve on its own," Ergen
wrote.
DirecTV has already embarked on a strategy of delivering communications through broadband
networks. A broadband network is one in which the "bandwidth," or range of frequencies, can
be divided and shared by multiple simultaneous signals such as voice, data or video.
The combined company would command the satellite market and compete with cable giants,
such as AOL Time Warner, whose broadband services dominate a large chunk of the market of
television watchers and Internet users.
Consolidation has become the buzzword in the communications industry, as Comcast recently
launched a $40 billion takeover attempt of AT&T's Broadband unit, the No. 1 U.S.
cable-television company, but AT&T has rejected the offer.
The letter states that the managements of Hughes and DirecTV have recently informed
EchoStar that they do not intend to pursue merger discussions with EchoStar.
"In light of the enormous benefits of our proposed combination, we are submitting this proposal
directly to you for you for your consideration," Ergen wrote to Smith.
Ergen said his company has reviewed the potential deal with antitrust experts, including David
Boies of Microsoft antitrust trial fame, and EchoStar is confident it could obtain antitrust
clearance in a "reasonable" timeframe.
Although DirecTV is the coveted aspect of the deal, Hughes also controls satellite network
PanAmSat and Hughes Network Systems, which supplies wireless business networks and
telecommunications equipment.
EchoStar's Dish Network serves more than 6 million subscribers in the continental United
States. Ergen owns more than half of the company but retains about 90 percent of the voting
power.
Shares of EchoStar closed at $30.44 on Friday on Nasdaq, off the 52-week high of $56.44 and
up from a low of $20.50. Shares of News Corp., which owns most of Fox Entertainment Group,
closed at $38.25 on the New York Stock Exchange on Friday, off a high of $57.50 in the past
year and up from the low of $28.65. Shares of Hughes, which closed at $19.36 on Friday on
the New York Stock Exchange, have reached as high as $38.00 in the past year but are barely
up from the low of $17.55. |
