GM Wins Tax-Free Status for DBS Merger

Author:
Publish date:
Updated on

General Motors Corp. said Thursday that it has received a favorable ruling
from the Internal Revenue Service assuring that GM subsidiary Hughes Electronics
Corp. could split off from its parent and merge with EchoStar Communications
Corp. in a transaction tax-free to GM and its shareholders.

The ruling applies to federal income taxes only.

It's another step forward for the proposed merger, which was announced last
October and which could be approved as early as September or October, according
to executives for Hughes and EchoStar.

The Federal Communications Commission and the Department of Justice must
approve the deal before it can go ahead.

EchoStar chairman Charlie Ergen continues to urge his subscribers to convey
their support for the deal. As recently as Monday, he used his monthly on-air
'Charlie Chat'as a forum for the merger, asking rural customers in
particular to voice their support to officials in Washington, D.C.

While Ergen and his counterparts at Hughes subsidiary DirecTV Inc. remain
bullish on chances for the merger's approval -- at least publicly -- there is
less consensus among industry observers that the deal will be approved.

Morgan Stanley Dean Witter & Co. satellite Vijay Jayant said on an
analyst's call Thursday that he's somewhat more optimistic about the merger's
chances than he was earlier this year, when he described the odds that the
government would approve the deal as 'pretty much a coin toss.'

Jayant predicted that the decision would likely come down to the last minute,
with the DOJ listing its concerns and asking how Ergen and DirecTV president
Eddy Hartenstein would address them.

If the Hughes/EchoStar deal is not approved, Hughes might have a tough time
finding another acceptable suitor, Jayant noted, given that GM is so concerned
about doing a transaction that would meet a tax-free ruling from the
IRS.

Related