Liberty drops bird bid; Echostar shores up broadband plans

Thu, 03/27/2003 - 7:00pm

Daily Variety, March 28, 2003, Friday

New York — John Malone's Liberty Media has agreed to step aside in the race for DirecTV parent Hughes Electronics, giving Rupert Murdoch's News Corp. a better chance at landing the satcasting unit.

In lieu of making its own bid for DirecTV, Liberty has struck a financing deal that could involve making a $ 500 million investment in News Corp.

Under the deal announced late Thursday, Liberty has the right to buy up to $ 500 million worth of News Corp. preferred shares (at the current trading value of $ 21.50 each) in the next six months. If Liberty does not exercise its right, News can require Liberty to make the purchase on the same terms if News Corp. acquires an ownership interest in Hughes within two years.

Bids for Hughes are due next week.

Investors are expecting News Corp., SBC and possibly other companies to lodge bids for at least General Motors' 20% controlling share in Hughes, which operates the 11 million-subscriber DirecTV platform.

Bids are likely to carry premiums in the range of 20%–50%, which equates to offer prices in the range of $ 14–$ 16 per share. Hughes stock closed Tuesday at $ 11.40, up 23.

In the meantime, second-place DBS service EchoStar, which failed last year to merge with DirecTV, made a preemptive bid to shore up its broadband service options in anticipation of tougher competition in the digital TV marketplace. Company announced Thursday that it has signed a long-term lease on a new satellite under construction by Lockheed Martin for SES Americom.

The new bird, AMC-15, is due to launch in August 2004 and will provide EchoStar with significant additional capacity, allowing for a suite of video and broadband services, including high-speed Internet.

While EchoStar chief Charlie Ergen conceded recently that his company lacks a definite broadband strategy with which to wage war with hard-wire cable ops, the leased capacity should give it a range of high-power options, including two-way services.

"The technology can provide two-way broadband as good as DSL or cable modem," said Kevin Smyth, SES Americom senior VP of residential satellite services. Smyth says the new satellite will offer custom spot beams, which will reduce the cost of offering broadband via satellite through its ability to serve a higher volume of users than any other previous attempt at broadband satellite. The ability to offer high-speed Internet access is considered critical as DBS providers attempt to woo digital cable customers.

Deal would allow EchoStar, which claims around 8.3 million subs, to shore up its competitive position with DirecTV, regardless of DirecTV's eventual new owner. The orbital position of the new bird complements its existing satellite fleet, so subscribers should not need to purchase new reception equipment.

Financial terms of the lease deal were not disclosed, though investors were clearly cheered that EchoStar could lease the capacity rather than having to invest in another new satellite on its own.

EchoStar still plans an early summer launch for its ninth satellite, EchoStar-9, which will enable it to carry a greater number of local stations.


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