NEW YORK — News Corp.’s sat-TV joint venture with EchoStar Communications Corp. moved one step closer to collapse Friday when the sat-TV operator went to court to try and squeeze $200 million out of the media Goliath.
Under the terms of their Feb. 19 deal, on file with the Securities & Exchange Commission, News Corp. is required to lend $200 million to EchoStar “on mutually agreeable terms” if News Corp.’s $1 billion investment in EchoStar had not been completed by May 1 and the satcaster needs the money for its operations.
Not in compliance
In its complaint, filed in federal court in EchoStar’s home state of Colorado, EchoStar said it asked for the money and as of Thursday, “News Corp. has failed” to comply. A News Corp. spokesman said EchoStar’s claim “doesn’t have any merit and we will contest the matter in court.” EchoStar stock dropped $1.75 on Friday to close at $13.62, while News Corp. stock inched up 12¢, to $18.75.
The legal action suggests that the two companies have made no progress resolving a dispute concerning technology to be used in the sat-TV service, which two weeks ago prompted News Corp. to threaten to pull out of the deal (Daily Variety, April 29).
Ready to fight the fight
EchoStar chairman Charlie Ergen appears to be prepared to let his company go to the wall rather than give in to News Corp.’s demands. Wall Street analysts believe EchoStar, a low-price sat-TV operator, will run out of cash some time in June.
An EchoStar spokeswoman said Friday the filing didn’t mean EchoStar had run out of money but she declined to comment about the company’s liquidity, saying more would be revealed in SEC filings this week. But Ergen told reporters April 29 he would only ask News Corp. for the money when he needed it. The EchoStar spokeswoman said she could not reconcile the apparent contradiction in the company’s statements.
The spokeswoman also claimed the court filing didn’t mean negotiations on the joint venture had collapsed, but she declined comment on the status of the deal. She did say that talks continued last week between the two companies at “the highest levels.”
As recently as Wednesday, a News Corp. exec told Wall Street analysts the company still was hopeful of resolving the dispute.
The exec reminded analysts that the $200 million loan has to be made on terms acceptable to both sides and it is possible that those terms are the crux of the latest dispute. EchoStar said in its complaint that News Corp. “was obligated to loan EchoStar $200 million on a non-interest bearing basis beginning May 1, 1997.”
But EchoStar would not likely have filed suit if it was hopeful of completing the deal, Wall Streeters say. “There is no way this merger can occur now if they take this step,” one Wall Street analyst said Friday.