DISH could surge today on news.
By Andy Pasztor And John Lippman
NEW YORK (Dow Jones)--EchoStar Communications Corp. (DISH) Chairman Charles Ergen, recently blocked by federal regulators from acquiring his main rival in the U.S. satellite-television market, has been talking with long-standing adversary Rupert Murdoch as well as Liberty Media Corp. (L) about possibly selling his company, according to industry officials familiar with the contacts.
There haven't been any formal negotiations, Mr. Ergen isn't commenting on his motives and it isn't clear what response these preliminary feelers have sparked. EchoStar currently has a market capitalization of $12.4 billion and debt of about $5.7 billion.
The surprising twist could indicate that the EchoStar chief is worried about his long-term ability to compete against players with deeper pockets, better access to programming and worldwide reach. He tried to attain that last year with an $18 billion bid for Hughes Electronics Corp. (GMH) and its DirecTV satellite unit but was shot down by federal regulators on antitrust grounds. Mr. Murdoch is now interested in acquiring DirecTV as part of his U.S. expansion plans.
People familiar with the matter say Mr. Ergen also had a similar contact with executives of Liberty Media, controlled by cable-TV mogul John Malone.
A headstrong entrepreneur, Mr. Ergen built EchoStar's Dish Network into the country's second-largest direct-to-home satellite service with eight million subscribers, compared with 11.2 million U.S subscribers for DirecTV.
For years, he has decried accelerating consolidation among cable-TV providers and global media companies. But he now appears to have at least opened the door to joining that trend.
EchoStar didn't dispute that it has been engaged in discussions with the pair of media powerhouses, but it isn't clear which side made the overture. In a brief statement, EchoStar said it "continues to focus its efforts on maintaining its leadership position in the cable and satellite industry. Obviously our board of directors would be required to consider any firm proposal that would benefit our shareholders." A company spokesman said Mr. Ergen wasn't available for comment.
Spokesmen for Mr. Murdoch's News Corp. (NWS) and Liberty Media also declined to comment.
While Mr. Ergen hasn't publicly indicated he is considering putting his company on the block, some Wall Street analysts and industry officials previously suggested that in the long run, it could be tough for EchoStar to survive on its own. Not only is Mr. Ergen's company in an increasingly expensive fight with DirecTV to snare new customers and subsidize receiving equipment provided to subscribers, it also faces a fierce battle with cable operators offering high-speed Internet service that EchoStar can't match nationwide.
Unlike Hughes, for instance, EchoStar has spent more than $150 million but still doesn't have a clear-cut strategy to use satellites for fast Internet connections as part of its array of offerings. What's more, capacity constraints on its satellite fleet allow it to offer local television channels to only about 65% of the U.S. population.
Indeed, long before the government vetoed EchoStar's bid for General Motors Corp.'s (GM) Hughes Electronics, Mr. Ergen acknowledged that his company would need more heft to survive in an era of media consolidation and vertically integrated giants able to control their own content and distribution. In an interview in late 2001 at his Littleton, Colo., headquarters, Mr. Ergen argued that an EchoStar-Hughes combination was the only way either satellite company could effectively compete against entrenched cable interests. At one point, he disclosed that he initially thought it would be EchoStar that got snapped up in a merger. "Quite frankly, I thought I was probably going to have to sell the company," he said.
Just before the Federal Communications Commission resoundingly rejected the DirecTV-EchoStar deal last October, Mr. Ergen told an industry gathering in New York that the entire satellite-broadcast industry could "fall off the cliff" because of its inability to compete across the board with cable providers for all 100 million homes with television sets. In additional comments to analysts the next month, Mr. Ergen worried that "the satellite category seems to have lost momentum" in retail outlets.
He added that his management team accepted the fact that "we're not going to become a dominant broadband player." Yet for the most part, such statements previously were viewed as ways to buttress Mr. Ergen's own expansion hopes.
The feeler to Mr. Murdoch belies the long and stormy relationship between the two men. Messrs. Ergen and Murdoch attempted in 1997 to merge their respective fledgling satellite-TV operations, but the joint venture collapsed three months later amid acrimony and lawsuits.
Then, in 2001, Mr. Murdoch made a bid for Hughes Electronics only to be outmaneuvered by Mr. Ergen, who came in at the last minute with an all-cash bid that was considerably simpler than what Mr. Murdoch offered and, hence, was more appealing to the board of General Motors, Hughes's parent.
That move triggered a behind-the-scenes lobbying campaign by News Corp. aimed at state regulators and lawmakers to scuttle the EchoStar-DirecTV deal on antitrust grounds. Since that deal fell apart, News Corp. and Liberty have banded together again to make a new run at DirecTV.
GM has suggested that it isn't in any rush to make a decision concerning the fate of its satellite-TV unit which, in the meantime, has altered its business strategy to concentrate less on grabbing new subscribers and more on wringing maximum revenue from current clients. GM and Hughes also are considering options that include spinning off DirecTV or selling it to other potential corporate buyers or private-equity groups.
In this volatile environment, say analysts, Mr. Murdoch could use the EchoStar gambit to pressure GM and Hughes to quickly embrace his proposal. On the other hand, if News Corp. loses out once more in its bid to buy DirecTV, EchoStar could end up as Mr. Murdoch's default choice to acquire his long-sought foothold in the U.S. satellite-TV market.
-Martin Peers contributed to this article.
(END) Dow Jones Newswires
01-21-03 0000ET
