Stock sales raise questions

Not necessarily a signal of AT&T deal, analysts say

David Milstead and Jeff Smith

Published November 29, 2007 at 12:05 a.m.

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Seven EchoStar executives and a director have sold $49.5 million in stock this month alone, further raising questions about whether AT&T is negotiating to buy the Douglas County satellite-TV company.

Kit Spring, a Denver-based analyst for Stifel Nicolaus, said the executives likely would hold their stock if they thought a sale was imminent. That's because AT&T is expected to offer a higher amount for EchoStar than the recent trading prices of between $40 and $50 a share.

But Spring also noted that the executives who sold their shares simply may not be "in the know" or could have sold for other reasons. Chief Executive Officer Charlie Ergen, Chief Financial Officer Bernie Han and co-founder and Executive Vice President James DeFranco weren't among the sellers. But company President Carl Vogel sold $1.7 million of stock this week.

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

A possible AT&T-EchoStar deal has been speculated off and on for years but reached a fevered pitch in September when The Street.com reported based on anonymous sources that negotiations were under way. Share prices soared, then gradually declined.

Additional takeover talk last week boosted the stock again. Some of the executives' stock sales took place Nov. 19, when EchoStar shares skyrocketed more than 25 percent from $39.51 to $50.80 before closing at $47.49.

In most cases, the EchoStar executives exercised options, netting profits of more than $20 million on the stock sales. One executive, chief technology adviser Michael Dugan, exercised nearly all his stock options, selling more than $23 million of stock for profits of $6.9 million.

Some sales occurred near EchoStar's $50.80 peak Nov.19. Shares have slipped since then, and closed at $42.84 Wednesday.

EchoStar co-founder Ergen, who with his family owns nearly 240 million shares worth $10.3 billion, was said by TheStreet.com to be holding out for $65 a share.

At $65, the family's holdings would be worth $15.6 billion.

Ergen has not been selling. Instead, his personal ownership increased this month, thanks to distributions of 9.25 million shares from several "annuity trusts" that hold shares for the family.

Jason Bazinet, a Citigroup analyst, acknowledged that the executive stock sales don't support his theory that there's a 65 percent chance AT&T will buy EchoStar. But Bazinet said he also could "paint a number of scenarios" that would.

For example, he said, the executives could know the company is for sale but the price Ergen is asking is lower than people think.

The executives also might think selling now is a wise investment move, considering the risk of a possible AT&T deal getting done, the months it would take to get approved by regulators and the stock's trading price by merger arbitragers in the meantime. Arbitragers assess the risk of a deal as they attempt to make short-term profits on the stock.

"I don't like (the sales by executives)," Bazinet said. "But does it make me want to jump off? No."

Thomas Eagen, an analyst with Oppenheimer & Co., also has written that he thinks an AT&T buyout is likely. Eagen couldn't be reached for comment this week.

Spring of Stifel Nicolaus has maintained that an AT&T takeover of EchoStar, the country's second-largest satellite-TV provider, is unlikely. His skepticism is shared by others.

In a report last week, Spring said it may make sense for AT&T to buy EchoStar as a hedge against the possibility that AT&T's own TV strategy doesn't work.

AT&T is deploying TV services as it extends fiber into neighborhoods, but its U-verse offering has only 126,000 subscribers so far.

Analysts say EchoStar could be a boost, especially in rural areas where fiber rollouts are too expensive. AT&T currently resells EchoStar TV services in 13 states.

"But we see more reasons (for AT&T) not to buy Dish," Spring wrote. He cited EchoStar's recent spike in customer churn and limited merger cost savings, and said a recently rumored price by The Street.com of $64 to $68 a share is too high.

Spring also questioned why Ergen, who co-founded EchoStar in 1980, would go from being a "media mogul" to selling out and possibly running a smaller company, such as EchoStar's proposed spinoff of set-top technology and other assets.

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