EchoStar Surges On AT&T Takeover Speculation

EchoStar Communications stock rose more than 4% ($2.04 each) to $51.08 per share Tuesday as speculation that the satellite TV giant is the target of a possible takeover by telecom giant AT&T heated up yet again.

Citigroup media analyst Jason Bazinet rekindled the buyout rumors in a report issued Tuesday where he stated that an AT&T deal could happen within the next 12 months. Adding fuel to that fire was a report on Internet business news site The that AT&T hired New York investment banker Goldman Sachs & Co. about one month ago to investigate the possibility of a merger.

EchoStar is the second largest satellite TV service provider in the country – DirecTV is first – with about 13.6 million subscribers. AT&T already has a deal to resell DirecTV service in a portion of its footprint and has been building out its own IPTV service – dubbed U-Verse – in selected markets.

Bazinet wrote that EchoStar would complement AT&T’s IPTV rollout, not replace it.

“Owning DBS can complement AT&T's fiber deployment by broadening the footprint, enhancing high-def video capabilities, and improving on demand services,” Bazinet wrote.

EchoStar has long been the target of speculation regarding an AT&T buyout, but that heated up last month when the second largest satellite TV provider said it was contemplating splitting itself into two separate companies – one housing its consumer satellite television business and the other its technology business and Sling Media. 

In his report Tuesday, Bazinet said that the split could force AT&T’s hand into doing a deal quickly or at least facilitate a transaction down the road.

Bazinet wrote that if the two companies had discussed a merger previously, the spin could prevent AT&T from buying EchoStar for two years. If merger talks had not occurred prior to the announcement of the split, the transaction could conveniently separate assets that the telco giant desires (core satellites and pay TV customers) from those it does not (set-top box design and non-core satellites).

Bazinet speculated that an AT&T purchase has a 65% chance of happening in the next 12 months.

“Given [the] spin's logical linkages to M&A coupled with ability of DBS to complement AT&T's IPTV rollout in an accretive way, we think it's likely that AT&T acquires EchoStar within 12 months,” Bazinet wrote.

He added that AT&T could pay as much as $65 per share for EchoStar.