EchoStar Drops News Corp. Suit
EchoStar Communications shares jumped 10 percent late Monday morning after it agreed to drop its lawsuit against News Corp. and sell 37 percent of the company to News Corp. and MCI WorldCom for broadcast licenses and other assets.
Under the deal, News Corp. (NWS), controlled by media baron Rupert Murdoch, will receive 24.3 million EchoStar (DISH) new shares and MCI WorldCom (WCOM) 5.97 million. At EchoStar's closing price of 35 on Friday, those shares would be worth $1.05 billion.
In return, those companies will give EchoStar a license for 28 DBS frequency channels, two satellites to be delivered in orbit and a direct broadcast operations center in Gilbert, Ariz. EchoStar has also agreed to carry Fox News on its satellite TV service.Shares of EchoStar jumped 3 1/2 to 38 1/2. News Corp. stock fell 3/16 to 28 3/16, and MCI WorldCom dipped 2 1/16 to 60 3/8.
The arrangement means EchoStar will drop its $5 billion lawsuit against News Corp., which alleges breach of contract in the wake of the media conglomerate's decision last year to back away from a deal to acquire a 50 percent interest in EchoStar.
News Corp, through a subsidiary, has also agreed to purchase 500,00 satellite set-top boxes by Dec. 1, 2002, while MCI WorldCom will be granted the non-exclusive right to bundle EchoStar's DBS service with MCI' s telephone service.
EchoStar, the fastest growing satellite TV service with 1.7 million subscribers, is the third largest in the United States behind Primestar and industry leader DirecTV, which is owned by Hughes (GMH), a subsidiary of General Motors (GM). At its current pace of growth, EchoStar should move into second place in the near future.
Goldman Sachs analyst Howard Rubel said in a research note that the Echostar-News deal could put pressure on DirecTV, even though "both systems appear to have critical mass."
News Corp. is one of the largest media companies in the world with annual sales of about $13 billion.
Written Jeffry Bartash