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EchoStar prepping counteroffer for DirecTV

May 28, 2001  •  Post A Comment

General Motors’ willingness to hear EchoStar Communications’ counteroffer for GM’s Hughes Electronics’ subsidiary is an act of fiduciary responsibility to shareholders as GM’s “focus and first priority” remains satellite merger negotiations with News Corp.
Sources say that despite the latest twist in the battle for DirecTV, GM’s negotiations with Rupert Murdoch’s News Corp. remain on track.
High-level sources close to the parties cautioned against reading too much into a Securities and Exchange Commission filing May 24 in which EchoStar said GM has indicated a willingness to “establish a dialogue” among legal and financial advisers of both companies to better understand EchoStar’s offer.
EchoStar, the rival domestic satellite provider (with 5 million subscribers) second only to Hughes Electronics’ DirecTV (with 12 million subscribers), is assembling a $5 billion cash counter offer that could be backed by AOL Time Warner and General Electric, which owns NBC.
EchoStar last week priced a $1 billion convertible bond offering, proceeds from which could be used for such an offer. EchoStar is already saddled with $4 billion of its own debt, but has $1.3 billion in cash and marketable securities.
Some Hughes shareholders, including Hughes Chairman Mike Smith, have been pushing for such a merger because they feel they would benefit more from the creation of a consolidated domestic satellite player. Mr. Smith’s abrupt resignation Friday was an indication to some analysts of GM’s commitment to sell its Hughes subsidiary its own way. Late last year, GM rebuffed efforts by EchoStar founding Chairman Charlie Ergen to discuss a possible merger with Hughes.
Sources say EchoStar, as early as this week, could formalize a counteroffer that would merge EchoStar and Hughes, and then have the combined entity borrow money to buy out GM’s stake.
EchoStar’s efforts could become more of a threat if AOL Time Warner, which owns a minority stake in DirecTV’s publicly traded Hughes, threw its financial resources and political clout behind a counteroffer. News Corp. also owns a 7 percent stake in EchoStar. Sources say GE looked at a proposal by EchoStar but has declined to be part of a counteroffer.
The companies involved in the long-running battle for DirecTV declined comment.
However, Toni Simonette, a GM spokeswoman, said, “Our negotiations with News Corp. are continuing. Those negotiations are our first priority, although we do have an obligation to consider any viable alternative.”
A report last week from SGCowen insisted that an EchoStar-DirecTV merger would not violate antitrust laws. However, with the power shifting to the Democrats in the Senate, the proposed merger will face stricter scrutiny.
An EchoStar bid, although all cash, is about $2 billion less in value than the cash and stock buyout proposed by News Corp. that would give News Corp. management control of the combined entity with a minority 30 percent ownership stake. With Microsoft Corp. and John Malone’s Liberty Media Group providing $3 billion to the deal, News Corp. may be persuaded to increase the cash component of its offer.