EchoStar Makes $34 Billion Stock Bid for Hughes

NEW YORK – U.S. satellite TV provider EchoStar Communications Corp. has put forward a $30.4 billion stock offer for Hughes Electronics Corp. and its DirecTV network in a move to eclipse a rival News Corp approach.

EchoStar said it was proposing to offer 0.75 of its shares for each share of the General Motors Corp.-owned Hughes unit, valuing the unit at about $22.83 per share, an 18 percent premium to Hughes' closing price of $19.36 on Friday.

The deal would create a formidable U.S. rival to cable operators but would face tough scrutiny from regulators. Indeed, Hughes and General Motors have already rejected previous approaches from U.S. number two satellite TV company EchoStar due in part to regulatory concerns.

The offer comes just days before Rupert Murdoch's News Corp had been expected to finalize a deal with General Motors in a move to make DirecTV and its 10 million subscribers the U.S. component of its Sky Global satellite TV network.

``This rival bid has arrived late in the game but you can never take (EchoStar Chairman) Charlie Ergen lightly and GM will obviously have to take a look at this. However, the antitrust concerns are the same as before and it's unclear how they would get around those,'' said one industry expert.

The value of News Corp's offer is still unclear, but sources have said in the past that such a deal would value the combined company at $50 billion to $60 billion.

Representatives of both General Motors and Hughes said their companies had not yet formed responses to the bid. News Corp. executives in the U.S. and Australia declined to comment.

EchoStar and Hughes would create a company with 16 million subscribers, about equal to AT&T Corp.'s cable unit AT&T Broadband, the leading U.S. cable operator. AT&T Broadband was recently put into play by a $40 billion bid by rival cable operator Comcast Corp.. AT&T rejected the bid.

EchoStar said it would assume about $1.9 billion in Hughes' debt. The deal would hand General Motors and Hughes shareholders about 66 percent of the diluted equity in the combined company. A key plank of EchoStar's bid is significant cost savings and revenue benefits from a combination estimated at about $37 billion, or $26 per share, for Hughes shareholders and up to $11 billion, or $20 per share, to General Motors shareholders.

However, analysts were skeptical about how EchoStar would achieve such vast savings. EchoStar said they would come principally from areas such as reduced program spending and reduced overlap in back-office areas and general costs.

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

A combination of Hughes' DirecTV and EchoStar's Dish Network would have to overcome technological hurdles given that the two satellite TV operators' set-top box technologies are different.

``General Motors is eager to wrap up a deal soon and in News Corp they have a deal in the hand. An EchoStar bid is more risky and could stumble at the regulatory hurdle,'' said one London-based analyst.

ANTITRUST HURDLES

Ergen said EchoStar had reviewed the potential deal with antitrust experts, including David Boies of Microsoft Corp. antitrust trial fame, and the company is confident it could obtain antitrust clearance in a ``reasonable'' timeframe.

But analysts said EchoStar could not offer any real assurances that a deal would receive antitrust approval.

A News Corp deal would be of less concern to regulators given that the United States represents a hole in the group's international coverage which currently stretches from Europe to Latin America and Asia and includes interests in Britain's leading pay-TV operator BSkyB and Asia's Star TV.

News Corp has spent many months trying to land DirecTV in a complex series of negotiations which at one point saw Murdoch consider acquiring EchoStar instead. But in May, General Motors and Hughes's boards formally approved talks with News Corp.

As part of News Corp's offer, Microsoft is believed to be contributing $3 billion in exchange for a minority stake.

After being rebuffed last year, EchoStar made an effort to jump start rival talks with Hughes in May, raising $1 billion in a convertible note offering, in addition to $1.3 billion in cash already on its balance sheet. But again, it was rebuffed.

``We believe the combination of EchoStar and Hughes will create tremendous value (and) we are now proposing an all-stock offer to you and your shareholders in this letter,'' Ergen wrote in a letter to General Motors' board over the weekend.

By appealing directly to GM, Ergen has taken a page out of the book of Murdoch, who also found Hughes a reluctant suitor until he made a pitch directly to GM executives.

Shares of EchoStar closed at $30.44 on Friday on Nasdaq, off the 52-week high of $56.44 and up from a low of $20.50. Shares of News Corp., which owns most of Fox Entertainment Group, closed at $38.25 on the New York Stock Exchange on Friday, off a high of $57.50 in the past year and up from the low of $28.65.

Shares of Hughes, which closed at $19.36 on Friday on the New York Stock Exchange, have reached as high as $38.00 in the past year but are barely up from the low of $17.55.

News Corp. is the parent company of the Fox News Channel, which operates FOXNews.com.