EchoStar Communications (Nasdaq: DISH) has made a $32 billion offer to purchase for its competitor Hughes Electronics. The bid, in the form of a share-swap, was not coordinated with Hughes Electronics. It is a last-minute attempt to prevent a merger between Hughes Electronics, controlled by General Motors (NYSE: GM; XGM; GMW) and Rupert Murdoch’s News Corporation (NYSE: NWS, NWS.A; ASX: NCP, NCPDP; LSE: NEWCP). EchoStar is Gilat Satellite Networks (Nasdaq: GILTF)’s partner in the Starband satellite Internet venture.
EchoStar operates the Dish Network satellite television broadcasting service, the second largest network in the US after Hughes Electronics DirecTV. EchoStar, which tried and failed to take over Hughes Electronics a few months ago, won 350,000 new subscribers in the second quarter, for a total of 6.07 million subscribers.
On July 19, EchoStar reported a second quarter profit of $2.1 million, representing a zero profit per share, compared with a loss of $133.1 million ($0.28 loss per share) in the corresponding quarter last year. Analysts had forecast a $0.10 loss share. EchoStar sales rose 50% in the second quarter to $966.3 million, compared with $646.1 million in the second quarter 2000.
EchoStar is offering 0.75 EchoStar shares per Hughes Electronics share. The offer reflects a price of $22.83 per Hughes Electronics share, representing an 18% premium on the market price. Even if the two companies’ shareholders agree to the terms of the bid, a merger will have to overcome another serious hurdle: The Antitrust Division of the US Department of Justice. A merger of the two companies would leave very little room for other satellite competitors in the US.
Concern over a veto to the merger by the US authorities was one of the main reasons for the rejection of EchoStar’s first bid to buy Hughes Electronics. General Motors urgently needs an injection of cash and is probably aware of the advantages of a merger between the two companies.
The negotiations between Hughes Electronics and News Corporation are on the verge of completion, but still require the approval of Hughes Electronics’s shareholders, who are likely to be less than enthusiastic at the deal, knowing that EchoStar is offering a substantial premium for their shares.
On July 11, EchoStar announced it will invest $50 million in Starband, increasing its stake in the venture to 32% and becoming the controlling shareholder. EchoStar’s stake in Starband may increase to 60% as a result of its commitment to bear the cost of developing and launching Starband’s next-generation satellite.
If EchoStar merges with Hughes Electronics, the US Antitrust Division may demand EchoStar choose between the competitors, Hughes Electronics and Starband. If the company overcomes this hurdle as well, it may have the best of both worlds: Gilat Satellite’s advanced technology with Hughes Electronics’s successful consumer deployment.
Published by Israel's Business Arena on 6 August 2001