EchoStar Communications’ stock rose Monday on speculation that Rupert Murdoch’s News Corp. was looking to acquire the second-largest direct-broadcast satellite provider and merge it with his DirecTV, the dominant player.
EchoStar, parent of Dish Network, saw its stock price hit a new 52-week high of $32.52 per share (up $1.89 each, or 6.2%) Monday, beating the previous mark of $32.41 per share.
The shares rose in the wake of a Los Angeles Times story on Herbert Allen’s Sun Valley, Idaho, media conference, which said rumors were swirling there that Murdoch was hatching a deal to buy Charlie Ergen’s EchoStar.
The Times quoted Ergen, EchoStar’s founder and CEO, as saying that such a merger “could save $3 billion in expenses,” while DirecTV CEOChase Carey chimed in that the current regulatory environment might be more amenable than it has been in the past to a merger of the two DBS players.
EchoStar tried to buy DirecTV a few years back, but that deal was derailed in 2002 by the Federal Communications Commission. Ultimately, News Corp. stepped in, and it now owns 38% of DirecTV.
In a note Monday, Wachovia Securities analyst Jeffrey Wlodarczak wrote that the “takeout price” in any deal with be an issue, because “we would suspect that Ergen would want at the very least $40 per Dish share.”
Wlodarczak also wrote that he believes the regulatory hurdles to a DirecTV-EchoStar merger are still high, given the reasons why the FCC rejected EchoStar’s bid for DirecTV back in 2002.
“The main sticking point was that the market would have been reduced to two competitors in most markets, and to one competitor in millions of rural households,” he wrote. “The development of an RBOC [regional Bell operating company] video offering seems to have solved the former, but the latter [a monopoly in a material percentage of the 32 million U.S. rural households] is still likely an issue.”
Officials at News Corp. and DirecTV declined to comment Monday, and EchoStar declined to comment.
Wlodarczak wrote that a key argument for a Dish investment was a potential takeout or leveraged buyout of the company.
“We think DirecTV is a logical suitor, as well as a leveraged-buyout deal given CEO Ergen's 60% stake in Dish and low leverage,” he wrote. “We believe that a combined Dish and DirecTV entity would be worth more than the two companies as stand-alones based on various synergies that could be realized and the effective elimination of one competitor [especially in the United States -- 30 million rural households].”