DBS Merger's Demise Costs EchoStar $600M
By Ted Hearn -- Multichannel News, 12/15/2002 7:00:00 PM
Plagued by hostile regulators, the proposed merger between EchoStar Communications Corp. and DirecTV Inc. parent Hughes Electronics Corp. came to an abrupt end last week, about five weeks before Hughes planned to walk away from the deal.
In a Dec. 10 joint statement, the companies announced a termination settlement under which EchoStar agreed to pay Hughes $600 million and Hughes agreed to release EchoStar from a commitment to buy PanAmSat Corp. for $2.7 billion.
The conclusion came faster than many expected. Some thought EchoStar chairman Charlie Ergen would litigate breakup terms in order to prevent News Corp., Liberty Media Corp. or both from making bids for DirecTV for months to come.
"We are appreciative of all the support we received and the opportunity to present the merger proposal to regulators. Obviously, we are disappointed in the final outcome," Ergen said in a statement.
A united EchoStar-DirecTV would have given the new firm 19 million subscribers, equaling about 90 percent of the direct-broadcast satellite market, but about 20 percent of the overall pay-TV market.
Regulators at the Federal Communications Commission and the Department of Justice blocked the deal, claiming it would eliminate satellite competition for millions of consumers without cable and drastically reduce competition in markets where cable is present.
EchoStar shares surged on the news, but Hughes shares sold off. EchoStar said it would take a $700 million charge to cover the breakup fee and other merger related charges.
EchoStar and Hughes officials had maintained a united front as opposition to the deal mounted. The first serious sign of division emerged on Dec. 4, when the FCC refused to complete review of a revamped merger proposal prior Jan. 21, 2003.
Hughes had the right to cancel the merger and demand a $600-million payment if regulators had not approved the deal by Jan. 21.
The FCC had said it would continue to accept public comment on the new merger proposal until Jan. 21, but Hughes declined EchoStar's offer to extend the breakup deadline to accommodate the FCC.
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