Englewood, Colo. — EchoStar’s board directed the satellite company’s management to pursue a possible separation of its businesses into two distinct publicly traded companies.
To execute the move, EchoStar said it has asked the Internal Revenue Service for a ruling on the tax-free nature of the transaction.
Under the proposal, EchoStar would separate its U.S. consumer pay-TV business into the free-standing Dish Network corporation.
Most of the company’s remaining technology ventures and infrastructure assets would be spun off into in a transaction that EchoStar expects will be tax-free to EchoStar and its shareholders.
Upon completion of the spin-off, EchoStar’s shareholders would have separate pro rata ownership interests in each company.
“We believe separation of our consumer-based and wholesale businesses could unlock additional value,” stated Charlie Ergen, EchoStar CEO. “Each company would be able to separately pursue the strategies that best suit its respective long-term interests. The spin-off transaction would also allow employee incentives to be tied to their respective company’s performance, and improve opportunities to effectively develop and finance expansion plans.”
The move would be transparent to Dish Network’s 13.585 million plus U.S. DBS customers, the company said.
Installation, customer service, billing and other consumer services would continue to be operated by Dish Network, together with most satellites and spectrum used to support that subscriber base.
Ergen would continue to serve as chairman and CEO of both Dish Network and the spun-off EchoStar operations, including its “set-top box design and manufacturing business, its international operations and assets used to provide fixed satellite services to third parties, together with satellites, uplink centers and spectrum licenses not considered core to Dish Network’s subscriber business,” EchoStar said.
The company claims to be “the world’s leading developer of digital video recorders,” through its set-top box business, which has shipped more than 9 million units in 2006 to Dish Network and international customers.
The recently announced acquisition of Sling Media would fall into the spun-off EchoStar assets.
EchoStar said the spin-off plans are “subject to certain conditions, including, among others, final approval by EchoStar’s board of directors of the transaction, effectiveness of a securities registration statement, confirmation that the spin-off will qualify as a tax-free transaction for EchoStar and its shareholders and receipt of regulatory and other necessary approvals.”
Final terms and timing of the transaction have not yet been determined, the company said.
EchoStar is preparing a registration statement for filing with the Securities and Exchange Commission in connection with the spin-off. The registration statement will include important information about the company, the proposed spin-off and related matters.