NEW YORK — The nation’s favorite satellite saga took a surprising twist Sunday as EchoStar went public with a hostile $32 billion, all-stock offer to merge with DirecTV parent Hughes Electronics.
News Corp. has been trying to clinch a deal with Hughes for nearly two years and, by all accounts, was nearing the finish line. EchoStar topper Charlie Ergen had approached DirecTV, the nation’s largest satellite operator, with an offer several months ago but was rebuffed and indicated recently his intention to forgo a deal.
That’s apparently changed. In a letter dated Aug. 5, DirecTV’s smaller rival takes its case to General Motors’ board and its chairman Jack Smith.
GM, which owns Hughes, has said it would consider all legitimate offers. The automaker may review EchoStar’s proposal in a meeting on Monday.
News Corp. declined to comment Sunday on Ergen’s last-ditch effort, which is likely to at least delay Rupert Murdoch’s dream of owning a giant U.S. satellite company. DirecTV would become the centerpiece of Murdoch’s global satellite empire called Sky Global Network that includes the U.K.’s BskyB and Star TV in Asia.
Ergen’s letter notes that “During the last several months, we have discussed with representatives of both General Motors and Hughes Electronics a combination of Hughes and EchoStar that would establish the only fully competitive alternative to the powerful U.S. cable/broadband providers.
“Unfortunately, Hughes’ and DirecTV’s senior management have recently informed us that they do not intend to pursue further discussions with EchoStar. In light of the enormous benefits of our proposed combination, we are submitting this proposal directly to you for your consideration. We are confident that your shareholders will be supportive of our proposal and enthusiastic about the extraordinary potential of this combination. We note that eight of GMH’s top 10 institutional shareholders are also holders of EchoStar common stock,” he adds.
The terms of the deal call for EchoStar to offer 0.75 of its shares for each Hughes share, valuing Hughes’ stock at about $22.83 per share, an 18% premium to Hughes’ closing price on Friday. The purchase includes the assumption of $1.9 billion of Hughes debt.
Shareholders of General Motors and Hughes would own about 66% of the newly combined company. Control has been a key issue in the bargaining between News Corp. and Hughes.
EchoStar said it has identified massive synergy opportunities valued at about $37 billion for Hughes shareholders and up to $11 billion for General Motors shareholders.
General Motors said in May it had approved talks between Hughes and News Corp. EchoStar said on July 19 that it could not persuade the Hughes’ board to make a deal. Reports noted at the time that Ergen wasn’t able to raise enough cash from outside investors to pad his bid.
In fact, now he’s offering no cash at all, just stock and future opportunities.
In his letter, Ergen says, “We were prepared to structure the transaction so that General Motors would have been able to receive a significant portion of its consideration in cash… Because Hughes has indicated an unwillingness to pursue this route — and we believe the combination of EchoStar and Hughes will create tremendous value — we are now proposing an all-stock offer.”
Ergen said he is confident regulators will approve a merger of the nation’s only two signficant satellite providers and indicated that GM had expressed the same opinion even though it had nixed a deal. “After extensive review by antitrust experts, including David Boies, we are confident we can obtain such approvals in a reasonable timeframe. In our discussions with your negotiating team, we were pleased that you acknowledged that regulatory approval of our proposed transaction is likely,” he said.
Sources close News Corp. and a number of Wall Streeters believe such a combination would face intense regulatory scrutiny.