UPDATE: EchoStar To Buy Satellite Co Hughes For $1.35 Billion
February 14 2011 - 11:50AM
Dow Jones News
EchoStar Corp. (SATS) said it will buy broadband
satellite-technology company Hughes Communications Inc. (HUGH) for
$1.35 billion, boosting EchoStar's capabilities for transporting
video and data.
According to terms of the deal, EchoStar will pay Hughes
shareholders $60.70 in cash for each of their shares. That's a 1.7%
discount to Hughes's closing price on Friday--the stock has jumped
sharply, rising by more than 50% this year, amid reports that the
company was looking to sell itself. The stock closed last year at
$40.45.
"It's roughly fairly valued," said Lawrence Harris, an analyst
at C.L. King.
Hughes' satellite-based Internet technology could be paired with
the video services EchoStar already offers through sister company
Dish Network Corp. (DISH). Hughes and Dish have customer bases that
overlap, allowing for the opportunity to cross-sell services. Dish
currently can't offer its own Internet connection and must partner
with smaller telecommunications companies, with most of the larger
players partnered with rival DirecTV Group Inc. (DTV).
EchoStar will likely recognize merger-related savings through
shared marketing and manufacturing costs, Harris said.
Satellite Internet service is important in areas where the
landline infrastructure is insufficient, most often in rural
regions where the cost to lay down cable or phone lines is too
expensive. Hughes owns one satellite and is slated to launch
another one next year which will allow it to provide faster online
services.
The companies said that when including Hughes debt that's
expected to be refinanced in connection with the deal, the
transaction's value is about $2 billion. Hughes is majority owned
by private-equity giant Apollo Management LP.
Hughes picked EchoStar after holding an auction for several
interested buyers, including other companies and private-equity
investors, according to a person familiar with the deal. The
process began in late fall.
EchoStar President and Chief Executive Michael Dugan said the
deal "will create a powerful leader in video and data transport,"
noting that Hughes has "an extensive fleet of owned and leased
satellites and experienced personnel in communications centers
around the world."
Both companies' boards of directors have approved the deal,
which is expected to close sometime this year.
Deutsche Bank advised EchoStar, while Barclays Capital advised
Hughes.
The deal marks the second time the EchoStar and Hughes attempted
to merge, although both companies looked radically different
before. In 2002, EchoStar, which included the Dish business, and
Hughes Electronics, which at the time owned DirecTV, had their
combination shuttered by regulators who feared a monopoly in the
satellite-TV business.
EchoStar split its business in 2008. Hughes Communications
focuses on satellite, and isn't connected to the satellite TV
business.
EchoStar shares rose 0.1% to $29.91. Hughes Communications fell
3.8% to $59.43.
-By Roger Cheng, Dow Jones Newswires; 212-416-2153;
roger.cheng@dowjones.com
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