EchoStar Communications stock plunged more than 10% ($3.60 per share) to $31.48 each in trading Wednesday on a downgrade from an influential analyst and comments from News Corp. chairman Rupert Murdoch that the two companies were not in merger discussions.
The company’s stock had been climbing in recent weeks on speculation that News Corp., which controls No. 1 direct-broadcast satellite service DirecTV Group, would attempt a merger with the No. 2 DBS provider. Comments from DirecTV CEO Chase Carey Tuesday afternoon that the regulatory environment was softening to such a merger only helped to fuel that speculation.
But Tuesday night, Murdoch, on a conference call to discuss fiscal-fourth-quarter results, told analysts he was not currently in discussions with EchoStar, quashing hopes that a deal was at least in the works.
“We’ve had no negotiations at all,” Murdoch said regarding a merger with EchoStar. “We’ve had a few friendly conversations, but there is nothing to report.”
That, coupled with Sanford C. Bernstein cable and satellite analyst Craig Moffett’s decision to downgrade both DirecTV and EchoStar from “market perform” to “underperform,” sent the stock into a tailspin.
In his report, Moffett wrote that merger speculation has “driven the stock price to new heights, leaving valuations stretched even as huge questions remain as to whether a merger is even possible from a regulatory perspective.” Moffett also noted that Murdoch’s comments did little to help the merger speculation.
Increasing the pressure on the two DBS stocks was DirecTV’s disappointing second-quarter subscriber growth -- 125,000 net new subscribers in the quarter, versus 225,000 last year -- and the robust basic growth of cable companies like Cablevision Systems, which said Tuesday that it had added 35,000 basic customers in the period, outpacing analysts’ expectations.
Moffett wrote that the contrasting subscriber numbers “paint a picture of competitive advantage swinging decisively toward cable.”
DirecTV shares were down 56 cents each (3%) Wednesday to $16.52 per share.
EchoStar is scheduled to report its second-quarter results Thursday at noon (EST).