SPACE.com -- EchoStar, Hughes Abandon Merger Fight


	EchoStar, Hughes Abandon Merger Fight By Sam Silverstein Space News Staff Writer posted: 02:36 pm ET 10 December 2002

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WASHINGTON -- Satellite TV rivals Hughes Electronics Corp. and EchoStar Communications Corp. have abandoned their controversial merger plan under an agreement that also relieves EchoStar of its contractual obligation to buy Hughes controlling stake in PanAmSat Corp., the companies said.

EchoStar of Littleton, Colo., has paid a $600 million break-up fee to Hughes as stipulated by its October 2001 agreement to purchase Hughes, according to a Dec. 10 statement released by EchoStar, Hughes and General Motors Corp., Hughes Detroit-based parent. The statement said Hughes of El Segundo, Calif., would hold onto its 81-percent share of PanAmSat, despite the fact that the merger agreement required EchoStar to buy the satellite operator regardless of whether the deal won regulatory approval.

The merger was rejected by the U.S. government earlier this year.

The terms of the termination agreement caught some Wall Street analysts by surprise.

In an e-mail to investors sent just prior to the EchoStar-Hughes announcement, Tom Watts, an analyst with SG Cowen in New York, said it was possible that EchoStar would pay as little as $400 million in break-up fees but probably would have to buy PanAmSat.

In October, the U.S. Federal Communications Commission (FCC) rejected the merger on grounds that the combination of Hughes DirecTV service with EchoStars rival Dish Network would create a satellite TV monopoly. The U.S. Department of Justice filed suit to block the deal later that month.

Some consumer groups had complained that the merger would create a TV monopoly in rural areas not wired for cable. EchoStar and Hughes countered, unsuccessfully, that their combination would form a stronger competitor to cable and bring more services to rural consumers, including more local TV channels and high-speed Internet access.

EchoStar and Hughes, which had appealed the FCCs decision and planned to fight the Justice Department in court, said they decided to abandon the merger because they would not be able to win regulatory approval for the deal before a pre-arranged January deadline.

Investors reacted to the announcement by driving up EchoStars stock sharply, leaving Hughes price largely untouched, and dumping shares of PanAmSat. At about 2 p.m. Eastern time Dec. 10, EchoStar was up more than 10 percent, to $21.08 per share; Hughes shares dropped about 1 percent, to $11.20; and stock in PanAmSat dove more than 20 percent, to $15.18 per share.

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