EchoStar-DirecTV players square off
Sly Fox bystander cagily circles the combatants
By John M. Higgins -- Broadcasting & Cable, 11/11/2001 7:00:00 PM
Regulators and dealmakers bracing for the EchoStar-DirecTV deal's antitrust review spent the week sizing each other up as the biggest potential combatant—Rupert Murdoch—remained cagey about whether he might attack the bid.
The News Corp. chairman, who lost the bidding contest for DirecTV parent Hughes Electronics, said he won't "actively work" to derail EchoStar's DirecTV takeover. But when directly asked, he would not count out impeding EchoStar in the Department of Justice's review.
"We haven't made up our mind at all on it," he said following the release of News Corp.'s earnings Wednesday. "There will certainly be a lot of people" opposing it.
Wall Street and Washington executives widely expect News Corp. to attack EchoStar in the antitrust process, partly out of revenge for snatching the deal away, partly in hope that rejection by regulators will let him step in and pick up the pieces in a year or so. At the very least, EchoStar's takeover of DirecTV means that the number of video providers in most markets will shrink from three—two DBS services and a cable system—to just two.
With the wave of overbuilders diminishing in recent months, the FCC finds that just 1% of U.S. communities currently have more than three video providers.
Murdoch contends that Hughes took Ergen's offer "with very little reference to the regulatory risks, which every party now recognizes as very, very high."
A lot of the static should come from programmers, particularly given Walt Disney Co.'s massive attack on America Online's takeover of Time Warner Inc. last year.
Murdoch said that all sorts of programmers will probably lobby Justice on the deal to keep Ergen's planned DBS monopoly from having too much leverage over networks. When Ergen announced the deal, Murdoch said, "the first thing out of his mouth was how much he was going to squeeze all these companies on pricing. It wouldn't surprise me to see lawsuits coming from this, not necessarily by us."
DOJ officials won't be the only ones eyeballing the deal. FCC Cable Bureau Chief Ken Ferree signaled that the takeover "raises concerns" there as well. "At first blush, there appear to be serious concentration issues created by having all the prime [DBS] slots held by one entity," he said.
Ferree and other FCC officials met with EchoStar and DirecTV executives Thursday to provide a list of issues that will be tackled in the agency's merger review.
The deal apparently would not break any specific FCC ownership limits, but the agency is required to make sure the transfer of DirecTV's satellite licenses serves the public interest.
EchoStar Communications Corp. has sealed the funding deal to enable its acquisition of Hughes Electronics and arch-rival DirecTV.
EchoStar also filled an embarrassing hole in its offer: Ergen's inability to secure financing for part of his $30 billion bid. The company persuaded Credit Suisse First Boston to join Deutsche Bank in providing approximately $5.5 billion in loans.
Because Ergen couldn't initially come to terms with lenders, Hughes parent General Motors had to accept his personal guarantee for $2.75 billion, not the sort of note typically found in high levels of the merger game.
—Additional reporting by Bill McConnell
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