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Merger talk a boon for EchoStar

Share price rises on AT&T rumor

Jeff Smith, Rocky Mountain News

Published October 17, 2007 at midnight

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EchoStar shares rose another 4 percent Tuesday amid continuing speculation that AT&T might try to buy the Douglas County-based satellite-TV provider for as much as $65 a share.

Analyst Jason Bazinet of Citigroup predicted a 65 percent chance of a deal within the next year, and TheStreet.com reported that AT&T had hired the investment banking firm Goldman Sachs to explore a possible acquisition.

But another analyst, Victor Schnee of Probe Financial Associates, held open the possibility of an EchoStar-DirecTV alliance once John Malone's Liberty Media's acquisition of a DirecTV controlling stake is approved.

Whatever happens, the merger speculation has been great for Charlie Ergen's EchoStar. Shares were up $2.04, to $51.08 Tuesday. Two months ago, the stock was trading at $38.

EchoStar spokeswoman Kathie Gonzalez reiterated the company doesn't comment about merger speculation. AT&T also hasn't commented.

EchoStar and AT&T rumors go back years.

But many experts say they make sense now in the context of competition between communications carriers to sell TV-Internet-telephone bundles.

Telcos are scrambling to provide TV services, while satellite-TV companies need partners on the high-speed Internet and telephone front.

The latest round of speculation ignited in late September when EchoStar said it was considering separating its Dish network consumer business from its set-top box-making business.

EchoStar may be trying to isolate the consumer assets that AT&T would want to buy, Bazinet said in a research report.

Or if the parties already have had some talks, the possibility of an EchoStar spinoff raises tax issues that could compel AT&T to act now, Bazinet said.

Last month, TheStreet.com reported AT&T had offered $55 a share, but Ergen was holding out for $65. Bazinet said he thinks the values are logical, considering EchoStar would be giving up the option of merging with DirecTV.

Some have questioned why AT&T, which is running fiber to neighborhoods for its video services, would want EchoStar. Bazinet sees Dish as a hedge to AT&T's video strategy.

The two companies have a marketing partnership in 13 states and also jointly market Homezone, a service that combines satellite TV with Internet content.

AT&T also may be motivated to act before Douglas County-based Liberty Media does.

Schnee of Probe Associates said he believes a merger with EchoStar "has to be at the top of Malone's list."

"DirecTV will rue the day if they let AT&T . . . get to Echo(Star) first," he said in a statement.

Liberty Media CEO Greg Maffei recently said that an EchoStar-DirecTV merger probably would be the best option for DirecTV. But he expressed uncertainty that it would be approved by regulators, who blocked it in 2002.

Said Schnee, a former antitrust attorney: "We find it far more likely that a merger . . . will pass antitrust muster this time around than appears to be generally thought."

EchoStar

DISH: Nasdaq

$51.08

+$2.04

or 303-954-5155