EchoStar Jumps; Barron’s Triggers Revived Rumors Of AT& T Deal; Citigroup Upgrades To Buy From Hold
Posted by Eric Savitz
November 19, 2007, 10:16 am
EchoStar (DISH) shares are sharply higher this morning on renewed hopes that the company could be acquired by AT&T (T). Triggering the renewed speculation: a bullish item in this weekend’s Trader column in Barron’s, which said “AT&T reportedly is scrambling to put together a bid before year end that will entice EchoStar’s CEO, Charles Ergen.” According to the story, AT&T has offered $65 a share, but EchoStar is asking $75.
EchoStar, of course, has announced a plan to split the company in two pieces, with spare satellites, its set-top box production arm, newly acquired Sling Media and other assets in one company, and the Dish Network in the other. I would presume AT&T would want the broadcasting piece; at the time DISH announced the planned split, there was speculation that part of the reason for cutting the company in two would be to make it easier for AT&T to buy the piece it wanted, but not the rest.
EchoStar’s shares, which had jumped on takeover rumors in recent weeks, hit the skids after reporting a big jump in customer churn in its latest quarter.
This morning, Citigroup’s Jason Bazinet upped his rating on the company to Buy from Hold, while maintaining his $52 price target. Bazinet repeated his opinion this morning that there is a 65% chance AT&T buys DISH within 12 months. He had cut his rating to Hold from Buy on November 12. He notes that the stock had dropped 23% in the last five trading days. “We think the market has more than priced in the higher churn and related sub-prime, but not factoring in the likelihood of AT&T buying DISH,” he writes.
JRPG’s Gerard Hallaren this morning writes that EchoStar “is an extremely undervalued stock,” although he contends that “EchoStar’s management is not particularly interested in selling the company right now.”
Hallaren sees three choices for the company, which he thinks have an equal probability of playing out - and each of which adds value to current holders:
* Sell to AT&T for $65-$70 a share plus the value of the technology business.
* Do a partial spinoiff of the Dish Network; he thinks that approach would create $60 a share in value for holders.
* Remain independent; he thinks the Dish Network can be worth $90 a share in three years - not including the value of the technology company.
Hallaren says that “Goldman Sachs [banker for AT&T] is all over EchoStar,” but that Ergen refuses to meet with them. “Bankers, in general, annoy Charlie,” he writes. “Those close to Charlie says AT&T is wasting its time unless the bid goes a lot higher or its management team will go directly to Charlie. We see Charlie Ergen as the primary risk to any proposed deal. Owning more than 40% of the company, Ergen’s motivations and time horizons are likely different from other shareholders.”
EchoStar today is up $3.73, or 9.4%, at $43.56.
