General Motors Corp. on Sunday agreed to sell its Hughes Electronics subsidiary and its DirecTV home satellite network to EchoStar Communications for $25.8 billion, the automaker said.
GM's board of directors decided to sell to EchoStar after News Corp. dropped out of the bidding Saturday. If approved by regulators, EchoStar's purchase would make the home satellite business in the United States a near monopoly.
The purchase thwarts an 18-month effort by Rupert Murdoch's News Corp. to acquire Hughes and expand into the world's biggest market and will give EchoStar 91 percent of U.S satellite-TV customers. The purchase may arouse antitrust scrutiny, analysts said.
Under terms of the deal announced in a news release, GM would technically spin off Hughes and merge it with EchoStar in a tax-free transaction.
The new company would be called EchoStar but would market its service under the DirecTV name. GM shareholders still have to approve the deal, which GM said it expects to close in late 2002.
EchoStar, of Littleton, Colo., is offering 0.73 EchoStar shares for each share of Hughes. Based on EchoStar's closing stock price Friday of $25.26, the deal values each share of Hughes at $18.44 -- a 20 percent premium to Hughes's closing share price of $15.35.
News Corp. had been in talks with GM in hopes of gaining a U.S. satellite-TV service to combine with its satellite assets in Europe, Asia and Latin America. EchoStar made its offer in August.
"It's going to leave (News Corp.) no obvious entry into the U.S. market," said Conor O'Shea, an analyst at BNP Paribas in London, which has a "market perform" rating on shares of British Sky Broadcasting Group Plc, a company controlled by Murdoch. "It would be a big blow."
EchoStar entered the picture this summer with a proposed stock swap and assumption of almost $2 billion in debt for Hughes and its DirecTV division, which has 10 million subscribers. EchoStar also had guaranteed GM a $500 million breakup consideration if regulators reject the deal.
EchoStar operates Dish Network, a distant No. 2 among satellite television providers with 6.7 million subscribers. A merger of the two services would give the company a stronghold on the home satellite television business in the United States.
While it was still in the hunt for Hughes, News Corp. noted that regulators are sure to scrutinize any
deal with EchoStar to ensure competition remains in the satellite television market.
Last week, the president of the National Consumers League wrote a letter the Federal Trade Commission and the U.S. Justice Department asking both agencies to look into the possible implications of an EchoStar takeover of DirecTV.
"This would almost certainly lead to reduced competition, higher prices and poorer service for millions of consumers," wrote National Consumers League president Linda Golodner.
GM was anxious to sell off Hughes in order to focus more fully on its core automotive business.
Despite its market-leading position with DirecTV, Hughes lost $227.2 million in the third quarter and $481.6 million through the first nine months of the year. The company announced plans in August to lay off 10 percent of its 7,900 workers.
"This is the deal that's best for Hughes shareholders," said John L. Stone, an analyst at Ladenburg, Thalmann & Co.
"There are a lot of advantages to just being large when you're in this business." Stone has a "strong buy" rating on Hughes shares and a "buy" rating on EchoStar.