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EchoStar in Hughes bid

August 6, 2001 Posted: 0008 GMT

NEW YORK (CNNfn) -- Three weeks after apparently ending its bid for Hughes Electronics Corp., No. 2 U.S. satellite television provider EchoStar Communications Corp. made a $30.4 billion stock bid for the operator of DirecTV network, which is also coveted by rival News Corp.

A merger of EchoStar and Hughes, while far from certain, would create a robust competitor to AT&T in its cable business, the biggest in the United States. But General Motors may want cash as well as stock for the DirecTV assets of its subsidiary Hughes, and the deal, if one is reached, could run into problems with regulators – concerns that some analysts say caused GM to reject an earlier bid from EchoStar.

EchoStar CEO Charlie Ergen, speaking to industry analysts in New York, said he would consider adding some cash to the offer, and added that while the deal might raise concern among regulators, any issues could be resolved.

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Littleton, Colo.-based EchoStar (DISH: down $1.65 to $28.79, Research, Estimates) plans to offer 0.75 of a share for each share of the tracking stock of General Motors Corp.-owned Hughes (GMH: up $0.68 to $20.04, Research, Estimates). The bid values Hughes at about $22.83 a share, an 18 percent premium based on Hughes' closing price of $19.36 Friday.

GM spokeswoman Toni Simonetti said the company was reviewing the EchoStar bid. GM's board, due to meet Tuesday at a regularly scheduled meeting, is likely to consider the EchoStar offer.

"We'll conduct a thorough review, and consider it or any serious alternative proposal in due course," Simonetti said. Negotiations with News Corp. had reached "a very advanced stage," which included an offer that has yet to be made public, she said.

News Corp. declined to comment on EchoStar's bid but a spokesman said talks with GM were going well and an announcement could come soon.

An EchoStar spokesman said it was premature to speculate about potential job cuts from an EchoStar-Hughes deal and the management or board structure of a combined company.

A bear hug

The announcement, made Sunday in a letter to GM Corp. Chairman Jack Smith, caused EchoStar stock to tumble Monday, reducing the value of its bid, while rival News Corp. (NWS: down $0.80 to $37.45, Research, Estimates) also fell. Shares of Hughes jumped while GM (GM: down $0.13 to $63.15, Research, Estimates) edged lower.

EchoStar's main bidding rival is Rupert Murdoch's News Corp., which is seeking to buy Hughes and gain control of DirecTV, which has over 10 million subscribers. News Corp. hopes to combine DirecTV with its own Sky Global Networks, the world's largest satellite television company.

The value of News Corp.'s offer isn't known but sources have said the deal would value the combined company at $50 billion to $60 billion.

A combined EchoStar-Hughes would have about 16 million subscribers, close to AT&T Corp.'s cable unit, AT&T Broadband.

"It has certainly thrown a spanner in the works from their (News Corp.'s) perspective and it is something that needs to be taken reasonably seriously," said Paul Xiradis, director of equities at fund manager Ausbil Dexia.

Ergen would not comment on what his firm would do if GM rejects it again, adding he was confident the bid will be accepted despite lack of success in past talks. "We want to hear what GM has to say," he said. "To some degree I think the shareholders will have input on this."

EchoStar previously had included $5.5 billion in cash in its bid and Ergen said Monday he would be willing to restructure the current deal to include cash. EchoStar is making its offer public before News Corp.'s deal is announced to let shareholders and the board know what's on the table.

"To use a poker analogy, if the deck is a bit stacked against you, spread the deck on the table and let everyone see the cards," Ergen said.

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Ergen would not comment directly on News Corp.'s bid for Hughes, but he suggested no other bidder would see the cost savings or incremental revenue growth that a combined EchoStar-Hughes operation would see.

"I don't know any deal that has any synergies with DirecTV unless you're already in the business in the United States," he said.

With this second attempt, EchoStar's Ergen is very determined to buy Hughes, analyst Vijay Jayant, of Morgan Stanley, told CNNfn. 364 KB AIFF or 364 KB WAV

Raising regulatory problems

Ergen is confident that the deal will be able to win regulatory approval, even though it would combine the two major players in satellite television, because he believes regulators will look at the entire pay-television industry as a whole.

"This is a combination not of the No. 1 and No. 2 in marketplace. This is a combination of the No. 3 and No. 7, make it an effective competitor to cable," he said.

But Ergen told Lou Dobbs Moneyline some "safeguards" many be necessary in rural markets where there is no competing cable service.

Check satellite stocks

EchoStar, which has more than 6 million subscribers, also said it would assume about $1.9 billion in Hughes' debt. Current Hughes shareholders, including GM, would own about two-thirds of the combined company. Ergen estimated regulatory approval would take about nine months after the deal is accepted.

Analyst Ed Hatch, of SG Cowen Securities Inc., said that both the News Corp. and EchoStar offers raise regulatory problems. "EchoStar would have to make some concessions to the FCC particularly in rural markets where there is no alternative video provider," Hatch said.

GM said last year it was considering a number of alternatives for Hughes in an effort to generate cash. News Corp.'s Rupert Murdoch has made no secret of his desire for DirecTV. And in May, the boards of GM and Hughes formally approved talks with News Corp.

EchoStar also expressed interest in November for Hughes, but was rebuffed, according to filings with the U.S. Securities and Exchange Commission.



-- from staff and wire reports


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