DirecTV, EchoStar Cancel Merger Plans

By Greg Tarr -- TWICE, 12/23/2002

LITTLETON, COLO. — EchoStar and GM Hughes/ DirecTV announced they had officially canceled their merger bid after agreeing to a breakup settlement.

One day later, DirecTV announced it had reached an agreement with the NFL on a five-year extension of the NFL Sunday Ticket package. Terms were not disclosed. DirecTV will have an exclusive on the out-of-market NFL game service for several years.

Both companies indicated that regulatory opposition had become too overwhelming to believe they could achieve a favorable outcome by the end of the agreed-upon merger deadline.

Under the settlement ending the merger pact, EchoStar has paid $600 million to Hughes, as spelled out in the original agreement, but was given an out on another breakup fee, which obliged EchoStar to also purchase Hughes' 81-percent stake in the struggling PanAmSat operation for an additional $2.7 billion.

The settlement reportedly resulted from a dispute between EchoStar and Hughes over the breakup terms. The settlement avoided the cost of litigation and the risk that regulators would also block EchoStar's purchase of PanAmSat.

The merger proposal received negative rulings from both the FCC and the Justice Department for its potential to negatively impact subscribers by eliminating satellite competition.

EchoStar scrambled to present an alternative proposal that called for it to give key satellite frequencies to Cablevision's pending Rainbow DBS venture to preserve competition. But the offer was viewed by opponents as too little, too late.

Explaining why they felt their counterproposals could not win in the allotted time, the DBS companies cited "action taken by the Department of Justice, 23 states, the District of Columbia and Puerto Rico to block the merger, as well as the FCC's decision to send the merger application to a hearing."

General Motors is expected to search for new suitors for its GM Hughes Electronics operation, which includes DirecTV.

Rupert Murdoch's News Corp. had sought to purchase the operation before the merger option was approved, and is widely expected to re-enter the picture. Additionally, officials at Liberty Media recently said they might explore purchasing the satellite company, either alone or more likely with additional investors, like News Corp.

Meanwhile, DirecTV said it will retain its exclusive small dish rights for the NFL Sunday Ticket service through 2007 and cable will be unable to participate at least through 2005. DirecTV also has exclusive rights to offer NFL Sunday Ticket subscribers enhanced technical innovations, including HDTV game telecasts, viewer-selected camera angles and replays, and other technology.

Under the agreement, DirecTV will also launch the NFL Channel beginning next year. The 24/7, year-round channel will feature news and programs dedicated to NFL football.