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Justice KO’s satcaster merger

Gov't to nix EchoStar's 'control of the skies'

NEW YORK — The Justice Dept. delivered a knockout blow Thursday to the merger of EchoStar and DirecTV. After a 12-month review, the agency called the deal anti-competitive and bad for consumers and plans to go to court to block it.

“This merger would give EchoStar control of the skies — leaving customers to suffer from the resulting reduction in competition,” said Charles James, assistant attorney general in charge of the DOJ’s Antitrust Division.

Most industry players and Wall Streeters expect News Corp.’s Rupert Murdoch to make another run at DirecTV parent Hughes Electronics — with a significantly reduced offer. Murdoch had negotiated for a year and half to buy Hughes from parent GM before Ergen swept in and snatched it over one weekend last October. News Corp. offered something shy of $30 billion worth of cash, stock and assets it would transfer to a new company.

Hughes went with EchoStar chairman Charlie Ergen, whose offer was valued at $26 billion, with more cash. Antitrust lawyer David Boies reportedly told GM execs a merger of the two satcasters had a 70% chance of passing regulators.

Back then, Hughes was trading at $15 — now it’s under $10. News Corp. declined to comment Thursday, but Murdoch and chief operating officer Peter Chernin have said in recent weeks they’d look at Hughes again but any new deal would differ significantly in structure — and price.

Analysts don’t foresee a bidding war for Hughes. “Rupert will still pay more than anyone else will, so what’s the point of a new auction?” said one fund manager. He thinks Walt Disney may eye the asset but won’t outbid Murdoch.

Fewer reg hurdles for Rupe

While Murdoch rivals won’t relish his enhanced command of content and distribution, a News Corp.-DirecTV deal won’t face the same antitrust hurdles in Washington that EchoStar did.

GM, with its own financial ills and shaky stock, still needs to unload Hughes.

News Corp. could resurrect Sky Global Networks, Murdoch’s vision of linking his global satellite holdings — including BSkyB, Sky Asia, Sky Latin America, Stream in Italy and a flagship U.S. satcaster — under one roof.

Longtime News Corp. exec Chase Carey had been tapped to run the division but became a minister without portfolio once it was tabled.

Insufficient competish

The DOJ ruling follows the Federal Communications Commission’s rejection of the deal Oct. 10 with a proviso that the parties could resubmit a revised proposal in 30 days. In a far-fetched remedy, Ergen tried to convince regulators this week that he could build New York-area cabler Cablevision into a viable satellite competitor by handing it frequencies and other support. The argument didn’t fly.

The DOJ said it “concluded that even if the proposed concept could be realized, it was unlikely to become a sufficient replacement for the vigorous competition that now exists between Hughes and EchoStar within a reasonable period of time.”

Justice has filed a civil antitrust lawsuit to block the merger, joined by 23 states, the District of Columbia and Puerto Rico.

In a statement, Ergen said he still believes “passionately that the merger of EchoStar and Hughes is the best chance to stop rising cable prices and to bring enhanced services to all Americans … EchoStar will continue to explore all possible means to be allowed to compete against the cable giants and for more choice for all consumers.”

C’vision airy on sat

Cash-strapped Cablevision dismayed some investors by indicating its satellite dream — which could be quite pricey — isn’t dead. “Cablevision continues to believe that the restructured merger with the divestiture of spectrum and assets provides a unique opportunity to ensure a programming and technology-driven, competitive future for the satellite industry.

“We are moving forward, pursuing advanced satellite technology, new programming and the benefits of HDTV as we continue to explore all available options to meet these consumer demand,” the company said.

Cablevision is in the final stages of wrapping up a sale of cable network Bravo to NBC. AMC is likely to be sold to MGM, in combination with NBC.

The DOJ, like the FCC, ignored EchoStar’s exhortations to view satellite as only one small corner of the consumer video market, much less powerful than cable and the only viable alternative to cable. There’s outside support for the satcasters’ claims that they can offer local broadcasts in all markets and provide broadband service only if they are merged.

EchoStar has 7.5 million subscribers and DirecTV nearly 11 million; both are growing. Together, they control the only orbital slots allocated for direct broadcast satellite service covering the entire continental U.S., the DOJ noted. “Hughes and EchoStar compete vigorously against each other, and this competition leads to substantial benefits to consumers,” it said, adding that any efficiencies likely to result from the merger weren’t “sufficient to outweigh the substantial adverse impact of the transaction on competition and consumers.”

Will fight continue?

It’s not clear if EchoStar and Hughes will still try to make the case in federal court that the deal should go forward. Such efforts have been successful in the past, but Ergen’s statement made no mention of his plans. In their original contract, the partners apparently set Jan. 21 as a final breakup date when they would go their separate ways if the deal wasn’t closed. No litigation could be completed by then.

EchoStar shares rose 2.88% to close at $20.39 and Cablevision jumped 2.36% to $9.56. Hughes nosed up 0.82% to $9.85. News Corp. eased 0.13% to $23.23.