Ergen-nomics: Fighting The Breakup Fee

[John Corn]

NEW YORK - Like a determined doctor in the emergency room, EchoStar Communications Chief Executive Charles Ergen is hovering over his deal with defibrillating paddles, trying to revive it even though the patient has expired.

Yesterday, the U.S. Department of Justice (DOJ) filed a civil antitrust lawsuit to block EchoStar's (nyse: DISH - news - people ) proposed $18 billion acquisition of Hughes Electronics' DirecTV, a division of General Motors (nyse: GM - news - people ). The Federal Communications Commission announced its own objections on Oct. 10.

A last-ditch effort by the companies to give some spectrum to Cablevision's (nyse: CVC - news - people ) satellite company, Rainbow DBS, to assuage regulators' concerns about a monopoly seems to have left the government cold. Now it's up to the courts to decide.

http://www.forbes.com/2002/11/01/cx_pp_1101echostar.html

[James_F]

Love that picture of him! :grin:

http://www.forbes.com/media/moreon/ergen_charles.jpg

[Karl Foster]

All E* subs should get their checkbooks out. The fee is $85 per subscriber for the failed merger ($600,000,000 / 7,000,000 subscribers). That money comes ultimately from the subscribers. I hope you get your money's worth.

[Mark Holtz]

Uh, there $600m is not a solid fee. I remember reading someplace a few months ago that, depending on the conditions of failure, the fee could be just $300m... or ZERO. Remember, the merger also involves the purchase of PanAmSat (I believe).

[Mike123abc]

I saw a parade of analysts on TV yesterday urging GM to go negotiate the breakup with Echostar now. Not to fight for the 600mm fee. They all were stressing that not being able to do anything because they will be tied up in court for a long time is not worth any breakup fee.

[John Corn]

Exactly Mike, Ergen may come out of this paying nothing.

[thomasmaly]

I agree John, Charlie will slip out the back door without paying for his ride.

[Mark Holtz]

We'll see. From what I heard in the mish-mash of stories, some of the proceeds of the DirecTV sale/merger would go to GM's pension fund, which is struggling at the moment.

[Richard King]

some of the proceeds of the DirecTV sale/merger would go to GM's pension fund,Which is why they will need to settle any claims with Echostar FAST so that they can get on with the sale to someone else (Murdoch or management team).

[Mark Holtz]

Okay, the source was in front of me in the Forbes article. Read this:

"On the flip side, Hughes continues to negotiate on behalf of this merger; if it fails to devote its best efforts to doing so, according to the contract, EchoStar would be off the hook for the $600 million and may no longer be obliged to pay $2.7 billion for an 81% stake in Hughes' satellite unit PanAmSat.

Hughes, of course, is in dire need of the money, given the fact that parent GM is facing a possible $20 billion shortfall in its pension plan. Ergen has all the time in the world--he can afford to walk this thing through the courts for a while--but GM needs to sell Hughes quickly to raise cash."

So, essentially, one side has to declare uncle, and it's over, and GM has more pressure than Charlie to declare "uncle".

And, both sides have to give a good-faith effort. EchoStar may not have the pay $300 million because of an effort by DirecTV management to buy the company themselves.

So, from our perspective, the merger may be dead, but, by Charlie still fighting for the merger, despite the rulings by the DOJ and FCC, he's biding his time.

So, in effect, the fat lady is ready to sing. We're just wondering who will make the song request.

[Mike123abc]

I wonder if E* still wants PanAm Sat. If they do (and they might just for things like uplink capacity and such) they will probably be able to reach and agreement quickly. Since PAS gave some negative indications they could reduce the price by $600mil and let E* buy PAS for 2.1b and "pay" the $600m breakup fee. This would take the least amount of time since they would not be fighting the breakup fee and still buying PAS.

PAS is not too bad a business, it has been making some money. It has 5 uplink sites (E* has 2 atm), and a lot of capacity (anyone say more odd pointing locals). The only question about PAS is that some of its big customers are tettering on the edge of bankruptcy and could hurt revenues/profits, and not to mention how much E* would want to pay for it.

[Martha Stewart]

Charlie could teach me a lot about avoiding fines & breakup fees - I think I'll give him a call

[Frapp]

Originally posted by karl_f
All E* subs should get their checkbooks out. The fee is $85 per subscriber for the failed merger ($600,000,000 / 7,000,000 subscribers). That money comes ultimately from the subscribers. I hope you get your money's worth.

I disagree, the DEALERS will ultimately pay any amount of this bill due through increased chargebacks in my opinion :(