Hughes to merge with EchoStar

Hughes Electronics is to be spun-off from General Motors and Hughes itself is to merge with EchoStar Communications.

The new company, which would retain the EchoStar name but would use the ‘DIRECTV’ brand for consumer offerings, would be based in Littleton, CO, and would employ approximately 20,000 people and serve more than approximately 14.9 million direct-broadcast satellite TV customers.

The merger would create the US’s second-largest pay television platform with more than 16.7 million subscribers.

The transaction is expected to require approximately $5.5 billion of total financing, which EchoStar expects to fund in the capital markets prior to closing. Completion of the financing has been backstopped by a bridge commitment of approximately $2.75 billion from Deutsche Bank, and a bridge commitment of approximately $2.75 billion from General Motors, the latter of which the parties plan to replace with a commitment from one or more other leading financial institutions in the near future. The GM bridge commitment is secured by a pledge of $2.75 billion of EchoStar stock held by a trust controlled by EchoStar Chairman and Chief Executive Officer Charles Ergen.

The transaction is subject to a number of conditions, including approval by GM shareholders as well as regulatory clearance under the Hart-Scott-Rodino Act and approval by the Federal Communications Commission.

The transaction is also contingent upon the receipt of a favourable ruling from the US Internal Revenue Service that the separation of Hughes from GM will qualify as a tax-free spin-off for US Federal Income Tax purposes.

The transaction is currently expected to close in the second half of 2002.