DETROIT — The company that runs the Dish Network is poised to become the nation’s leading provider of home satellite TV service after reaching a deal to acquire rival DirecTV from General Motors Corp.
EchoStar Communications Corp. is buying Hughes Electronics and its DirecTV subsidiary from GM for approximately $25.8 billion. The deal, struck Oct. 28 during a weekend session of GM’s board, came after News Corp. chairman Rupert Murdoch abruptly pulled a longstanding offer for Hughes off the table.
With 10 million subscribers, DirecTV is the nation’s largest provider of home satellite television service. EchoStar’s Dish Network is a distant No. 2 to with 6.7 million. The combined 16.7 million subscribers would be slightly fewer than those of AT&T Corp., the leading cable TV provider.
The new EchoStar would control nearly all of the U.S. satellite TV market, but GM said the new entity would have 17 percent of the total pay TV market while cable companies control 80 percent.
Charles Ergen, chairman and chief executive officer of EchoStar, told reporters and analysts Oct. 29 that the deal would create “a true competitor to cable.”
Ergen also said the new company would be able to reduce costs by sharing satellite spectrum, bargaining for lower programming costs and having one standard for set-top boxes.
The new company would retain the EchoStar name, and DirecTV would become a brand for its services and related products. The deal must be approved by federal regulators and GM shareholders.
Under terms of the deal, GM would technically spin off Hughes and merge it with EchoStar. A majority of EchoStar’s shareholders already have given their approval.
EchoStar is offering 0.73 EchoStar shares for each share of Hughes. Based on EchoStar’s closing stock price Oct. 26 of $25.26, the deal values each share of Hughes at $18.44 — a 20 percent premium to Hughes’s closing share price of $15.35.
EchoStar is also offering a $600 million breakup fee to Hughes in the event that the deal is turned down by regulators.
The deal is expected to close in the second half of 2002, the companies said. Hughes will control 54 percent of the stock, while EchoStar shareholders will maintain a 36 percent interest in the new company.
GM president and chief executive officer Rick Wagoner said the deal would provide “significant benefits to Hughes, EchoStar, millions of present and future DirecTV customers, and shareholders of both GM and EchoStar,”
Ergen said consumers would benefit from the company’s ability to increase the number of markets served with local channels via satellite and more high-definition TV offerings.
In midday trading Monday, GM Hughes shares fell 67 cents to $14.6,00378 on the New York Stock Exchange, where News Corp. stock was off $1.91 at $27.14. EchoStar shares slipped 18 cents to $25.08 on the Nasdaq Stock Market.
Ergen will remain chairman and CEO of the new company. The board of directors will have nine members, five of whom would be independent directors.
Aside from DirecTV, Hughes also provides high-speed Internet service through DirecPC and its PanAmSat unit distributes entertainment and information to cable television systems, TV broadcast affiliates, telecommunication companies and corporations.
Opposition to the transaction is likely to come from consumer groups who fear domination of the home satellite TV market by one company.
Last week, the president of the National Consumers League asked the Federal Trade Commission and the Justice Department to look into the possible implications of an EchoStar takeover of DirecTV.
GM wanted to sell off Hughes in order to focus on its core automotive business.
Murdoch and GM had been in talks for more than 18 months, but when the automaker’s board failed to make a decision Oct. 27, Murdoch ended his bid for the company.
Murdoch coveted DirecTV as an adjunct to the satellite TV services News Corp. operates overseas. Acquiring DirecTV would have given him a global satellite television network.
EchoStar came into the picture last spring. Over the summer the company proposed a stock swap and assumption of almost $2 billion in debt for Hughes.
Despite its market-leading position with DirecTV, Hughes lost $227.2 million in the third quarter and $481.6 million through the first nine months of the year. The company announced plans in August to lay off 10 percent of its 7,900 workers.
On the Net:
General Motors Corp.: http://www.gm.com
EchoStar Communications Corp.: http://www.dishnetwork.com
Hughes Electronics Corp.: http://www.hughes.com