Touting the possibilities for broadband services, satellite TV company EchoStar Communications Corp. made a public offer Sunday to buy its larger rival, Hughes Electronics Corp., for US$32.3 billion in a stock-for-stock swap.
EchoStar offered three of its shares for each four of Hughes. The offer values Hughes at $22.83 per share, 18 percent more than its Friday closing price of $19.36 on the New York Stock Exchange.
Hughes' parent and chief shareholder General Motors Corp. (GM) said no to EchoStar once before, declining the previous offer out of concern over regulatory and antitrust issues, according to published reports. GM and News Corporation Ltd. have been in talks to merge EchoStar with Rupert Murdoch's Sky Global network of satellite services.
EchoStar made its newest pitch directly to the GM board of directors in an open letter. Touting the virtues of a combined satellite company with 16 million subscribers and almost all of the 100 million households within the satellite coverage area, EchoStar said the merger would establish "the only fully competitive alternative" to powerful U.S. cable and broadband providers.
In an apparent appeal to regulators who may chafe at the thought of the largest and second-largest satellite providers merging, EchoStar said the combined company would accelerate the introduction of next-generation broadband services that will bridge the "digital divide" with its ability to provide high-speed services to consumers and businesses in rural areas. Any pricing plan developed by the combined company would carry uniform national rates for both urban services and rural services unserved by the cable industry.
Cable television is the competition for satellite TV, not other satellite companies, said Charles W. Ergen, EchoStar's chairman and chief executive officer, in a conference call with the press on Monday.
"We're the third and seventh-largest pay-TV providers," he said. "Together, we're 18 percent of the market ... you look at AT&T (Corp.) or Time Warner (Cable Inc.), or worse -- AT&T and Time Warner combined, and we look small."
The combined company could also use the broadcast spectrum more efficiently than it is as allocated separately to the two companies, Ergen said. With twice the spectrum, half could be used to provide the current satellite TV services, freeing the other half for high-speed Internet services. "Both of us don't have to be broadcasting HBO," he said.
An analyst said offers of a uniform pricing plan and promotions of future Internet services miss the point.
Most people willing to spend hundreds of dollars in initial costs -- and a monthly fee somewhat higher than cable charges for television service -- live in rural areas where cable service is unavailable, said Brownlee Thomas, a telecommunications analyst from Giga Information Group Inc.
"EchoStar is going after Hughes to be a bigger player in the market, not to get into the Internet," Thomas said. EchoStar will eventually enter the Internet service provider business, regardless of the success or failure of this merger, she said.
Hughes makes consumer satellite equipment capable of both sending and receiving data. EarthLink Inc. began offering satellite Internet service using Hughes' gear in May. Hughes' DirecTV unit announced on Thursday that it would begin offering broadband Internet services over satellite later this year.