GM's Sale of DirecTV to EchoStar Would Create Nation's Biggest Satellite-TV Service With 17 Million Customers29 Oct, 2001 By: Staff Reporter
In a surprise deal handed to the underdog, General Motors Corp.'s board of directors approved Sunday the sale of Hughes Electronics Corp. and its DirecTV unit to EchoStar Communications Corp. for $25.8 billion in stock and cash, said sources close to the deal. The sale, if closed, would make EchoStarthe largest satellite television operator in the United States, with 17 million customers and a91% market share.
EchoStar will pay 0.73 of its shares for each share of Hughes, slightly less than the 0.75 price it disclosed publicly in August. That values Hughes' shares 20% above Friday's closing price of 15.35. EchoStar will get three of Hughes' nine board seats, and EchoStar chairman and c.e.o. Charles Ergen will lead the company.
EchoStar beat out Rupert Murdoch's News Corp., which had been negotiating with GM for a year and a half, looking to add Hughes' DirecTV to its Sky Global satellite network. But News Corp. on Saturday withdrew its proposal, reported at nearly $29 billion in cash andstock, after GM's board of directors could not decide on a buyer earlier in the day.
Sources close to the company are surprised that News Corp. did not end up with the prizedDirecTV. "I think News Corp.'s mistake was they didn't do a lot to lobby Hughes shareholders, to show them the value of the deal," a source said. "Ergen did a lot to campaign to the shareholders, and they were naturally inclined to think an EchoStar deal was the better option."
News Corp. could resurface if the EchoStar deal does is not finalized, either because offinancing issues or regulatory hurdles. Justice Department antitrust officials are likely to pounce on the deal because it limits choice for customers in rural areas who have no access to cable TV.
Ergen has argued that provisions could be put in place to protect rural customers, and that cable companies provide enough competition to keep a combined EchoStar-Hughesconcern from enjoying an undue edge in the market.
To defend his arguments, sources said, Ergen has retained David Boies, the attorney who represented the U.S. government in its antitrust case against Microsoft, as antitrust counsel.
"Odds are 70% in EchoStar's favor that the deal will pass regulatory hurdles," a sourceclose to the deal said. "We're just surprised GM would take that 30% risk."
According to sources, Ergen's pledge to purchase satellite services provider PanAmSatCorp., 80%-owned by Hughes, if the Hughes/DirecTV deal is not approved by regulatorsmight have reassured GM that it would receive the cash it needs to improve its financialstanding with shareholders.
GM, which owns 30% of Hughes' tracking stock and 100% of its assets, will sell $4.2billion of that stock if the EchoStar deal closes. Under terms of the deal, GM will technically spin off Hughes, which trades as a tracking stock of GM, and merge it with EchoStar in a tax-free transaction.
Georg Szalai in New York contributed to this report.