A former U.S. Department of Justice official hired by a Wall Street
securities firm is expected to conclude in a new report that a merger between
EchoStar Communications Corp. and DirecTV Inc. would not run afoul of antitrust
laws, sources said.
The report, prepared for SG Cowen Broadband & Satellite Services, is
expected to argue that the benefits of competition to cable from a single,
robust direct-broadcast satellite player would outweigh the costs of
consolidation in the DBS market, sources said.
SG Cowen hired Donald Russell to prepare the report. Russell, now a private
attorney, served in the DOJ for 24 years. Most recently, he headed its
Telecommunications Task Force during the Clinton administration and played a key
role in the DOJ's review of several media mergers, including AT&T Corp.'s
acquisition of Tele-Communications Inc.
SG Cowen is not expected to release the Russell report until Thursday.
Analyst Mike French said Tuesday that he was not permitted to discuss any
details in the report until after its public release.
In a press release Tuesday, SG Cowen said it asked Russell to draft a report
that would replicate, in his judgment, how the DOJ would analyze an
EchoStar-DirecTV merger that came before it.
DirecTV parent Hughes Electronics Corp., a division of General Motors Corp.,
has been in merger talks for months with News Corp. chairman Rupert Murdoch.
Murdoch put the chances of deal at 50-50 last week.
Meanwhile, EchoStar chairman and CEO Charlie Ergen has been lurking on the
sidelines, telling analysts an EchoStar merger with DirecTV would create the
EchoStar announced Monday that it would seek to raise $1 billion in
convertible bond notes to fund additional satellites, as well as strategic
investments and acquisitions, leading some to speculate that the company was
building a war chest for a merger with DirecTV.
Russell's report is expected to conclude that an EchoStar-DirecTV combination
would make the DBS industry more efficient in the purchase of cable networks and
the distribution of local TV signals in local markets.
DirecTV and EchoStar currently provide local TV signals in about 40 markets.
A merger would potentially free up dozens of channels that were formerly used to
provide duplicative local TV signals and cable networks.
A combined DirecTV and EchoStar would have about 15 million subscribers,
ranking the new company as the second-largest U.S. distributor of
multichannel-video programming, between No. 1 cable MSO AT&T Broadband and
No. 2 Time Warner Cable.