General Motors confirmed Thursday its spinoff of DirecTV parent Hughes Electronics will be tax free to GM and its shareholders — a core condition for the automaker to pursue a proposed merger between Hughes and EchoStar Communications.
GM said it received a favorable ruling in a letter from the Internal Revenue Service. Decision removes an internal barrier to GM’s spinoff of its Hughes subsid in a move that would combine DirecTV with rival EchoStar. Spinoffs sometimes carry heavy tax burdens that can wipe out the short-term financial advantages of a deal.
But the IRS may be the least of GM’s problems as the satellite merger still faces tough scrutiny in Washington from the Federal Communications Commission and the Justice Dept.
The clock has stopped on the FCC review as the companies continue to supply regulators with a stream of documents. News Corp., which nearly clinched its own deal with Hughes, has been lobbying hard against the merger, and Wall Streeters are split on whether it will ultimately be approved.
GM, Hughes and EchoStar shareholders need to vote on the transaction.
A decision out of D.C. is expected in the fall, and the companies said in a statement they still hope to complete the transaction in the second half of the year.
Deal would combine the nation’s only two satellite providers, creating an antitrust issue but also a dynamic competitor to the much larger cable biz.
Cablers AT&T and Comcast are trying to push through a merger this summer that would create the biggest cable company in the U.S.