One Big Satellite TV Company
by David Sims
EchoStar, the number-two satellite TV provider in the U.S., will make a run to acquire DirecTV, its bigger rival. Some news reports pitched the acquisition as a struggle between master dealmaker Rupert Murdoch, who wasn't able to convince DirecTV's corporate parent to take his cash, and EchoStar's penny-pinching chairman, who flies coach.
Here are the main points:
EchoStar will try to acquire DirecTV by buying its parent company, Hughes Electronics.
- General Motors, which owns 30% of Hughes, approved EchoStar's bid of $24.6 billion on Sunday. EchoStar's chairman, Charlie Ergen, predicted it would take a year to get the deal approved by the Feds.
- Combining the two companies would create a virtual monopoly in satellite TV service in the U.S. But Ergen says the two companies have to merge to compete with the larger cable TV industry. Together, the two satellite TV companies have 22 million subscribers and $15.2 billion in annual revenue.
- One reason lawmakers, regulators and consumer groups say they oppose the deal is that it would mean that rural pay TV customers, beyond the reach of cable, would have only one option. But Ergen counters that most cable TV subscribers have only one option, too.
The jilted party in all this is Rupert Murdoch, whose News Corp. has been courting GM, Hughes, and DirecTV for 18 months. In spring of 2000, there were even rumors that Murdoch might buy GM itself, just to get his hands on DirecTV.
Murdoch never made the terms of his offer public, but he says he had the cash in hand. Last Saturday he threw up his hands and walked away in frustration after GM's board said it couldn't decide. Shortly thereafter, it came to a decision, opting for EchoStar.
Murdoch offered a catty reply to this. The International Herald Tribune, drawing on reports from AP and Reuters, had him saying News Corp. had "no option but to withdraw our fully negotiated and financed proposal" and that they were "disappointed with the [GM] board's inaction in the face of an as-yet unfinanced counterproposal."
Some analysts say he may get a second shot. A bid by News Corp., which doesn't have a satellite TV operation in the U.S., wouldn't carry the same monopolistic baggage that threatens the EchoStar deal. And, as Murdoch was quick to point out, Ergen appears to be still putting the finances of his offer together.
Meanwhile, Ergen is also putting together his campaign to win the approval of regulators and lawmakers. High on their list: Billy Tauzin, the Republican Congressman who chairs the House Commerce Committee. The Wall Street Journal reported that General Motors' chief executive Rick Wagoner met with Tauzin on Sunday night, and Tauzin spoke on the phone with Ergen the same evening.
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