After staying mostly mum on his plans to acquire Hughes Electronics, including chief rival DirecTV, during the Satellite Broadcasting & Communications Association (SBCA) show, EchoStar chairman Charlie Ergen upped the ante with an unsolicited stock swap offer.
EchoStar sent a letter with a new offer to the board of directors for General Motors, which controls DirecTV parent Hughes Electronics in the closing hours of the SBCA Convention. Under EchoStar’s offer, Hughes (GMH) shareholders would receive .75 shares of DISH stock for each GMH share. That would represent $22.83 per GMH share, using the $30.44 per share closing price of EchoStar stock on Aug. 3, kicking the Hughes’ value up to $32.2 billion, according to the company.
The GM board members voted to review the EchoStar bid while moving forward on its negotiations with News Corp. Ergen’s deal would also include the assumption of $1.9 billion of Hughes debt.
Meanwhile, one of EchoStar’s suppliers of security systems, Switzerland-based Kudelski S.A., said it would back the EchoStar proposal with $1 billion in cash, if the money were needed.
In the letter to the GM board, EchoStar said, “The combined company’s unrivaled satellite network and subscriber base would enable it to achieve greater profitability than either company would be able to achieve on its own.”
The offer came after DirecTV chairman Eddy Hartenstein and president Roxanne Austin spent most of the SBCA show explaining that a final deal that would turn Hughes over to News Corp. appeared to be “rounding the corner” to completion. News Corp. is trying to acquire Hughes in order to add DirecTV to a new SkyGlobal spinoff that would command a worldwide satellite television network.
Industry analysts said the timing of the latest EchoStar offer appeared intentional, because it would likely further delay negotiations between Hughes and News Corp. and possibly drive the negotiating price higher if News Corp. does prevail, as many believe it will.
Some think the GM board will ultimately reject the offer, because a merger of the last two major U.S. DBS companies would fail to get government approvals on antitrust grounds. A combined DirecTV and EchoStar would effectively monopolize the high-power direct-to-home satellite industry in the United States, some have charged.
EchoStar argues, however, that the combined company would bring numerous advantages to consumers and would provide a stronger competitor to cable operators that run monopolies of their own on a regional basis.
Still, EchoStar’s DISH Network has made considerable market-share gains on DirecTV as GM has continued to negotiate the sale of Hughes. Further distractions would likely continue to play in EchoStar’s favor, analysts said.