EchoStar Buys Back Vivendi's Stake

EchoStar Communications Corp. agreed last week to repurchase Vivendi Universal S.A.'s 10 percent stake in the company for about $1.07 billion.

The price is about 30 percent less than the $1.5 billion Vivendi paid for its piece of the direct broadcast satellite provider a year ago.

In a press release Wednesday, EchoStar said Vivendi's preferred shares in the company would be converted into 57.6 million shares of common stock. EchoStar would then immediately purchase those shares for $18.50 each. The deal is expected to close Dec. 23.

Also in the statement, EchoStar said the elimination of Vivendi's contingent value rights, part of the original deal, would result in a $170 million non-cash gain in the fourth quarter for the DBS company.

In a research report, Deutsche Bank Securities cable and satellite analyst Karim Zia said the deal will likely be funded from EchoStar's $3.6 billion cash reserves, set aside to fund its failed merger with Hughes Electronics Corp, parent of DirecTV Inc., the main competitor to EchoStar's Dish Network DBS platform.

The Vivendi investment was originally needed to help fund that merger, which was blocked by federal regulators and officially terminated by both parties earlier this month.

The deal also helps prop up EchoStar's stock price — at least for a while — because it removes the Vivendi overhang and shrinks the satellite provider's share base, Zia wrote in his report.

Had the Vivendi stake become available on the open market, many analysts had feared, it would have significantly diluted EchoStar's share price.

EchoStar has agreed to pay Hughes a $600 million break-up fee, but was freed from its previous obligation to purchase Hughes' PanAmSat Corp. subsidiary for $2.7 billion.

"EchoStar will come out of the attempted merger with Hughes at essentially no cost and a significantly improved competitive position, reinforcing EchoStar management's strategic savvy," Zia wrote.

Terminating the Hughes deal opens the door for other suitors, including News Corp. and Liberty Media Corp.

Liberty, which was part of News Corp.'s failed bid for DirecTV last year, is expected to join forces with the media giant to make another run at the DBS provider.

Liberty had been expected to join forces with News Corp. in pursing a deal, and published reports last week said that the two companies were working on a 50-50 split of the Hughes DirecTV assets, with News Corp. maintaining operating control. At the company's annual meeting on Dec. 17, Bennett told reporters that all options are open.

"It's something we're interested in looking at," Bennett told Reuters. "Our preference would be with News Corp."