UPDATE: EchoStar To Buy Satellite Co Hughes For $1.35 Billion

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

DTE Energy (NYSE:DTV)
Historical Stock Chart
From Jun 2024 to Jul 2024