EchoStar: We Could Borrow Cash

6/03/2001 8:00 PM Eastern

The ongoing fight for control of DirecTV Inc. and its nearly 10 million direct-broadcast satellite customers continued to generate interest last week amid reports that EchoStar Communications Corp. was talking with strategic partners to help it construct a takeover bid to bring to Hughes Electronics Corp. parent General Motors Corp.

"There's a lot of interest from potential strategic partners, and those talks are fairly well along," EchoStar spokeswoman Judianne Atencio said late last week. She would not disclose which companies EchoStar had talked to.

Published reports said possible partners include SBC Communications Inc., BellSouth Corp., Verizon Communications Inc., Deutsche Telekom A.G., General Electric Co. or its NBC unit, Vivendi Universal S.A. and AOL Time Warner Inc.

Atencio confirmed that the financial community had expressed interest in providing bridge loans to EchoStar in the event none of those partners can help it raise the cash GM is expected to require before it spins off Hughes and its DirecTV subsidiary.

Several industry observers last week said they believe News Corp. chairman Rupert Murdoch is the likely winner of the battle for DirecTV ownership. Hughes chairman Michael Smith's abrupt departure from the company just before Memorial Day led many to believe a News Corp. deal was inching closer to completion.

"We continue to focus on our News Corp. talks," GM spokeswoman Toni Simonetti said last week. She would not comment on whether the automaker had granted EchoStar chairman Charlie Ergen a meeting to make his bid for Hughes.

Atencio also declined to comment on Ergen's schedule or on whether he was in Detroit last week to meet with GM.

Sources speculated that a mutual agreement between EchoStar and DirecTV last Wednesday to extend the deadline to June 12 for a key filing in an antitrust suit that EchoStar filed against DirecTV last year could clear the way for more serious talks between the two companies.

Industry insiders who met at last week's DBS Summit in Denver disagreed as to whether a DirecTV-EchoStar merger would create a stronger competitor to cable.

"Having one DBS company is not in the consumer's interests," Tellus Ventures Associates president Steve Blum said. "You'll be looking at a much more dynamic industry with two competitive DBS companies."

Blum said that DirecTV and EchoStar put pressure on each other to introduce new consumer features such as personal video recording and interactive television, adding that there's been very little pressure from the cable side.

"Cable's not the competition," Blum said. "Cable is their pantry — they go out and feed on cable."

Others say the cost savings inherent in a DBS merger would ultimately benefit both the consumer and the satellite industry's competitive position against cable.

"For the U.S. subscriber, a merger between DirecTV and EchoStar creates a juggernaut and something that competes tremendously well with cable," Alpert & Associates president Mickey Alpert said. "I think that if there is a merger, 40 million DBS subscribers by the end of the decade is a reality."

That said, Alpert believes that Murdoch is likely to be successful in his bid for DirecTV. He also doesn't rule out an attempt by Murdoch to go after EchoStar as well, in a few years.

Blum discounted the possibility that EchoStar would find a strong backer from among the telephone companies, pointing to the stack of failures from telcos' past attempts to enter the video sector.

But Blum said he would not be surprised if EchoStar's run at DirecTV drew other players back into the game. He said that any vertically integrated programmer — such as AOL Time Warner, The Walt Disney Co. or Viacom Inc. — would make an obvious candidate, although he added that at this point, going up against Murdoch in a bid for the DBS provider would be "a Hail Mary pass for anybody."

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