Failed DBS Merger May Drop Dead Sooner

Hughes can pull plug on EchoStar deal on Jan. 6
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EchoStar and DirecTV acknowledged that they may pull the plug on their merger a couple of weeks earlier than expected. EchoStar's agreement to take over DirecTV parent Hughes Electronics has a drop-dead date of Jan. 21, which means that either side could pull out if the deal hasn't closed by then.

In a new FCC filing, however, the companies said that Hughes can terminate the deal as early as Jan. 6 if EchoStar has not secured FCC approval. And, of course, the FCC has already rejected the deal, saying it would harm consumers by reducing competition. The Justice Department has rejected it on similar grounds.

The disclosure was contained in a Hail Mary appeal of the FCC ruling. Hughes is widely expected to drop the deal when it can, collect a $600 million breakup fee, and force EchoStar to follow through on its $2.8 billion acquisition of Hughes's interest in PanAmSat.

EchoStar Chairman Charlie Ergen is widely expected to try to avoid paying.

The appeal argues that, because the FCC let Comcast acquire AT&T Broadband, the EchoStar/DirecTV deal should go through as well. However, it neglects a salient point: Comcast and AT&T didn't compete with each other whereas DirecTV and EchoStar do. So the number of outlets for MTV, HBO and such didn't shrink under the Comcast deal but would shrink under an EchoStar/DirecTV combination.

Industry and Wall Street executives see EchoStar and DirecTV's appeal to an FCC administrative law judge as unrealistic, something that could take years to resolve. It is widely regarded as primarily an effort by both sides to be seen making their "best efforts" to complete the deal, a critical phrase in assessing whether EchoStar owes the breakup fee.

DOJ antitrust staffers have sued to block the deal, a process that typically takes a year or two. EchoStar and DirecTV have asked federal Judge Ellen Segal Huvelle to speed the process, but she has denied their requests.

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