DETROIT – EchoStar Communications Corp. is poised to become the nation's leading provider of home satellite TV service after reaching a deal to acquire Hughes Electronics and its DirecTV subsidiary from General Motors Corp.
The deal, worth approximately $25.8 billion, was struck Sunday during an unusual weekend session of GM's board and after News Corp. chairman Rupert Murdoch abruptly pulled off the table a long-standing offer for Hughes.
The prize both EchoStar and News Corp. were vying for was Hughes's DirecTV unit. 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 about 17 percent of the pay television market, according to a GM statement.
The new company also 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 federal regulators and GM shareholder.
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.
``This transaction provides significant benefits to Hughes, EchoStar, millions of present and future DirecTV customers, and shareholders of both GM and EchoStar,'' said GM president and chief executive officer Rick Wagoner in a statement Sunday.
``U.S. consumers would also benefit from the combined company's ability to increase significantly the number of markets served with local channels via satellite, provide additional channel offerings, increase high-definition TV offerings and accelerate the introduction of next-generation high speed Internet services,'' added Charles Ergen, EchoStar chairman and chief executive.
Ergen will remain chairman and CEO of the new company which will retain the EchoStar name. The board of directors will consist of nine members, five of whom would be independent directors.
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.
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.
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.