DETROIT – The company that runs the Dish Network is poised to become the nation's leading provider of home satellite TV service after reaching a deal to acquire rival DirecTV from General Motors Corp.
EchoStar Communications Corp. is buying Hughes Electronics and its DirecTV subsidiary from GM for approximately $25.8 billion. The deal, which was struck Sunday during an unusual weekend session of GM's board, came after News Corp. chairman Rupert Murdoch abruptly pulled a long-standing offer for Hughes off the table.
With 10 million subscribers, DirecTV is the largest provider of home satellite television service in the U.S.
EchoStar's Dish Network is a distant No. 2 to DirecTV, with 6.7 million subscribers. The combined company would serve more than 90 percent of all homes with satellite TV but only about 17 percent of the entire pay television market.
"The transaction itself is going to create a true competitor to cable," said Charles Ergen, EchoStar chairman and chief executive officer.
Ergen said the new company would be able to drive down costs by sharing satellite spectrum, bargaining for lower programming costs, and having one standard for set-top boxes.
The new company would retain the EchoStar name and use the DirecTV brand for its services and related products, according to GM. The deal must be approved by GM shareholders and by the Federal Communications Commission and other agencies.
Under terms of the deal, GM would technically spin off Hughes and merge it with EchoStar. A majority of EchoStar's shareholders already have given their approval to the deal through written consent, according to a statement.
EchoStar is offering 0.73 EchoStar shares for each share of Hughes. Based on EchoStar's closing stock price Friday of $25.26, the deal values each share of Hughes at $18.44 -- a 20 percent premium to Hughes's closing share price of $15.35.
EchoStar is also offering a $600 million breakup fee to Hughes in the event that the deal is turned down by regulators.
Opposition to the transaction is likely to come from consumer groups who fear domination of the home satellite TV market by one company.
Last week, the president of the National Consumers League asked the Federal Trade Commission and the U.S. Justice Department to look into the possible implications of an EchoStar takeover of DirecTV.
"This would almost certainly lead to reduced competition, higher prices and poorer service for millions of consumers," wrote league president Linda Golodner.
Ergen said the deal would benefit consumers by increasing the services the company would offer, including more channels.
And GM president and chief executive officer Rick Wagoner in a statement Sunday that the deal "provides significant benefits to Hughes, EchoStar, millions of present and future DirecTV customers, and shareholders of both GM and EchoStar."
Ergen will remain chairman and CEO of the new company. The board of directors will consist of nine members, five of whom would be independent directors.
Aside from DirecTV, Hughes also provides high-speed Internet service through DirecPC and its PanAmSat unit distributes entertainment and information to cable television systems, TV broadcast affiliates, telecommunication companies and corporations.
In the statement announcing the deal, EchoStar and Hughes said the merger would not cause a disruption of service or additional expense for current subscribers to either DirecTV or Dish Network.
GM had been anxious to sell off Hughes in order to focus more fully on its core automotive business.
Murdoch and GM had been in talks for more than 18 months, but when the automaker's board failed to make a decision on Saturday, Murdoch ended his bid for the company.
Murdoch coveted DirecTV as an adjunct to the satellite TV services News Corp. operates overseas. Acquiring DirecTV would have given him a global satellite television network.
EchoStar came into the picture last spring. Over the summer the company proposed a stock swap and assumption of almost $2 billion in debt for Hughes. EchoStar also had guaranteed GM a $500 million breakup consideration if regulators reject the deal.
Despite its market-leading position with DirecTV, Hughes lost $227.2 million in the third quarter and $481.6 million through the first nine months of the year. The company announced plans in August to lay off 10 percent of its 7,900 workers.