EchoStar Says GM Ready to Discuss DirecTV Bid

EchoStar Communications Corp. said Thursday that General Motors Corp. is ready to discuss a possible transaction to combine the two company’s satellite assets in a transaction that would create the nation’s largest pay television operation.

EchoStar, which is about half the size of GM’s DirecTV satellite unit, has contacted several potential partners this month in an effort to mount a rival bid to the one proposed by News Corp., which is looking to plug a gaping hole in its worldwide satellite empire by gaining control of the nation’s leading satellite provider.

A bidding war for DirecTV by EchoStar and News Corp. could profoundly reshape the television landscape. Combining EchoStar’s 5.6 million customers with DirecTV’s 10 million subscribers would create a company with wider reach than the largest cable operator, AT&T; Broadband, which serves about 15.5 million customers in the U.S. A merger of DirecTV with News Corp.’s Asian, Latin American and British satellite operations would create a global powerhouse with unparalleled entertainment and sports content.

Many industry executives and Wall Street analysts think EchoStar’s chances of prevailing are slim because of its lack of financial backing and antitrust laws that could prevent a merger of the nation’s only two satellite TV providers.

The company will have about $2.3 billion in cash after a $1-billion bond sale announced this week, but will still be billions of dollars short of the $10-billion value of GM’s 32% controlling stake in Hughes Electronics Corp., the satellite subsidiary that holds DirecTV.

While acknowledging that it would entertain new offers, GM said it is giving precedence to the News Corp. negotiations, which have been ongoing since September and are in the final stages.

“Our negotiations with News Corp. are continuing and are a priority,” GM spokeswoman Toni Simonetti said. “Our board has authorized us to proceed with News Corp. discussions, so that’s where our attention is focused. But the board has a fiduciary responsibility to look at any viable proposal.”

She said she would not comment on whether the company has set up any meetings with EchoStar.

It is unclear why EchoStar only emerged as a bidder in the final hours of the negotiations. The company also may have difficulty finding a partner that hasn’t already decided not to pursue Hughes. Each of the companies contacted by EchoStar, including AOL Time Warner, Vivendi Universal and NBC, have kicked the tires, with NBC examining the Hughes books as recently as a month ago.

Although NBC decided not to pursue Hughes, sources say the company might give the deal a second look, intrigued by the chance to become the nation’s largest pay television provider.

Similarly, Vivendi held meetings with Hughes last fall, when it was in the throes of completing its acquisition of Canal Plus and Universal Studios. Sources say Vivendi Universal Chairman Jean-Marie Messier, having completed those acquisitions in December, is desperate to make another U.S. acquisition that would help clarify his vision and give him credibility on Wall Street, which has shown little interest in the company’s stock.

Sources close to News Corp. say EchoStar Chairman Charles Ergen might be stirring up trouble for his rival, News Corp. Chairman Rupert Murdoch, in an attempt to drive up the price for Hughes. News Corp. reneged on a contract to merge its satellite assets with EchoStar, which won a breach-of-contract suit against News Corp.

Pundits are divided about whether EchoStar and Hughes could combine without raising antitrust concerns. Even EchoStar has acknowledged that without two satellite providers, millions of customers in rural areas not wired for cable would have no choice of pay television providers.

EchoStar shares dropped 73 cents to close at $33.30 on Nasdaq. GM rose $1.41 to $56.59, Hughes gained 55 cents to $24.30, and News Corp. fell 70 cents to $36.53, all on the New York Stock Exchange.