ECHOSTAR TERMINATES TAKEOVER OF HUGHES, DIRECTV
EchoStar agreed Tues. to terminate proposed agreement to take over Hughes Electronics and subsidiary DirecTV. Industry sources cited negative responses from Dept. of Justice and FCC as possible catalysts for decision to cancel deal rather than complete reapplication process at 2 agencies. Under settlement, EchoStar paid $600 million termination fee and agreed Hughes would retain ownership of PanAmSat.
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Consumers “will continue to reap the benefits of competition” as result of decision to abandon deal, said Hewitt Pate, acting Asst. Attorney Gen.-Antitrust. Antitrust Div. had said joining of 2 main DBS operators would reduce overall competition in multichannel video market.
“I'm impressed that they cut a deal on the breakup fee,” Legg Mason analyst David Kaut said. “Court litigation would not have served either party. It makes sense for both to cut a reasonable compromise.” Companies had submitted amended application for proposed deal to FCC Nov. 27 that detailed EchoStar’s intent to give 51 frequencies to Cablevision Systems to allow it to become DBS competitor (CED Dec 3 p3). Agreement had called for approval by deadline of Jan. 6, but because FCC didn’t heed requests for expedited action, meeting that date was nearly impossible, industry sources said.
With deal off table, Hughes remains open to new proposals by other companies, particularly Rupert Murdoch’s News Corp., which had expressed interest in past. Industry sources said Murdoch’s current interest was in acquiring piece of Hughes. Antitrust attorney Charles Biggio said Hughes-News Corp. deal would be vertical and less likely to raise antitrust issues: “If you look at the track record [of vertical transactions], you see there’s not much activity. I anticipate the DoJ will investigate,” but substantial antitrust concerns aren’t likely.
For EchoStar, termination of deal signals beginning of company’s growth, Kaut said, although “ultimately, they do face a real challenge from increasingly robust and competitive offerings by cable… Cable is not only offering multichannel video, but combining it with high-speed Internet. The problem will come when broadband really takes off. People will really want to combine the 2 functions.”
Response by National Rural Telecom Coop (NRTC) to announcement was positive. “This is the best outcome for all consumers,” NRTC CEO Bob Phillips said. Satellite Bcstg. & Communications Assn. had no immediate comment. CE industry reaction was slow to come by Tues. Thomson spokesman declined comment, except to reiterate his company had supported merger.