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DirecTV-EchoStar merger touted

Liberty Media CEO says joint entity would make sense

Jeff Smith, Rocky Mountain News

Published September 27, 2007 at midnight

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Liberty Media CEO Greg -Maffei said Wednesday a DirecTV-EchoStar merger would make strategic sense, but he's unsure whether it would pass regulatory muster.

Some people say "maybe you could get it done now," Maffei said, alluding to a similar deal thwarted in 2002. "I'm not an antitrust lawyer, but I'm not quite convinced it gets done."

Maffei's comments came at a "Dealmaker's Forum" hosted by the Association for Corporate Growth at the Denver Athletic Club.

Renewed merger speculation has followed EchoStar's announcement Tuesday that it is considering separating its core pay-TV business from its other assets.

Analysts such as Doug Mitchelson of Deutsche Bank Securities said in a research note that a stand-alone Dish Network would be easier for Douglas County-based EchoStar to sell.

AT&T also has been rumored to be a possible acquirer of EchoStar, the country's second-largest satellite-TV company with 13.6 million subscribers.

Douglas County-based Liberty comes into play because of an agreement it has with Rupert Murdoch to swap its stake in Murdoch's News Corp. for a controlling interest in DirecTV, the nation's largest satellite-TV company. The deal is expected to close by year-end.

Maffei said a merger with EchoStar probably would create the most value for DirecTV. For example, a merged entity would get better economies of scale in such areas as set-top box development and would result in less subscriber churn.

But he indicated EchoStar's Charlie Ergen and Liberty Media's John Malone likely would disagree over "who trumps whom" in controlling a merged satellite TV giant.

EchoStar spokeswoman Kathie Gonzalez said the company had no comment on the speculation.

EchoStar tried to buy DirecTV in 2002, but regulators blocked the deal. The Federal Communications Commission unanimously voted to deny the merger, saying it would result in a monopoly.

Maffei noted telcos back then weren't considered a competitive threat in the TV business.

Verizon since has started building fiber to the home for video services, and AT&T is running fiber to neighborhoods. Cable TV companies and telcos are now offering a "triple play" of TV, high- speed Internet and phone services, a bundle Maffei acknowledged DirecTV won't be able to match except through partnerships with telephone companies.

Some experts also have referred to a recent federal judge's ruling that a Whole Foods-Wild Oats merger is OK and should be placed in the context of the overall food industry rather than just the organic market. That could mean a DirecTV-EchoStar merger would be viewed in light of overall TV competition rather than the satellite market specifically.

Still, Maffei sounded as if a stab at a merger might be too much of a regulatory risk.

Ergen said last year that his "personal preference is we'd always remain an independent company," but added "we're not suicidal as a company" if there are opportunities that make sense.

Maffei also gave an additional glimpse into how Liberty was able to trade its stake in Murdoch's News Corp. for the controlling interest in DirecTV. He said a banker in the summer of 2006 "leaked" that Murdoch might be willing to part with the DirecTV interest. That was eventually followed by five months of "debating values," Maffei said.

He indicated Liberty had leverage because Murdoch, although in his mid-70s, is thinking about News Corp. continuing as a family dynasty.

Maffei's key points

• A DirecTV-EchoStar merger makes sense, but Feds likely would block it.

• If a merger goes forward, EchoStar's Charlie Ergen and Liberty Media's John Malone likely would disagree over "who trumps whom" in controlling a merged satellite TV giant.

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