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February 14, 2011 9:08 pm
The deal brings fulfilment to a merger that was first proposed nearly a decade ago. In 2002, EchoStar and Hughes proposed to merge at a much higher valuation but were blocked by the Federal Communications Commission and Department of Justice over antitrust concerns.
Hughes’ shareholders will receive $60.70 per share without interest, a 31 per cent premium over Hughes’ share price on January 19, the day before news of a possible takeover surfaced. Including debt, the deal is valued at about $2bn.
Barclays Capital advised Hughes on the deal, and several other suitors looked at the company in recent weeks.
Apollo Management, the majority shareholder of Hughes’ outstanding stock, approved the transaction. Analysts said there was little risk that regulators would block the deal today.
EchoStar works closely with Dish Network, the US satellite television provider, which it spun off in 2008. Hughes has satellite properties, but is better known for providing broadband capacity to businesses.
Bernstein Research senior analyst Craig Moffett said the acquisition was partly a hedge against any potential weakening in the market for satellite services for TV.
“It is an acknowledgement that [EchoStar’s] core satellite business is in jeopardy without a broadband component,” said Mr Moffett.
Charles Ergen, founder and chairman of EchoStar and chief executive of Dish, has been acquisitive lately. Earlier this month, Dish agreed to purchase DBSD North America, another satellite company, for $1bn.
“He seems to be diversifying his business and broadening it,” said Tom Champion, a Credit Suisse analyst. “His eggs are very much in one basket right now and it’s a vulnerable one.”
In a research note, Mr Champion said the deal made sense for several reasons. “It gives [Mr] Ergen a consumer broadband solution that can be bundled with Dish’s video product,” he said, adding that Hughes will bring enterprise and international market share to EchoStar. “And [Hughes’] hardware networking product fits well with [EchoStar’s] set-top box business.”
EchoStar shares were up 1 per cent at $30.14, while Hughes shares slipped nearly 4 per cent to $59.46.
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