EchoStar Weighs Spinoff of Technology Assets

On the heels of its $380 million purchase of Sling Media, EchoStar Communications is considering separating its businesses into two publicly traded companies, one for its Dish Network and one for its technology assets, the company said Tuesday.

The nation’s second largest satellite company said that its board has directed management to pursue a possible separation of its businesses. EchoStar recently submitted a request to the Internal Revenue Service for a ruling as to the tax-free nature of the transaction.

Under the proposed plan, EchoStar’s U.S. consumer pay-TV business would continue to operate as the Dish Network. Most of the company’s other technology and infrastructure assets would be spun-off in a transaction intended to be tax-free to EchoStar and its shareholders. Upon completion of the spin-off transaction, the shareholders of EchoStar would have separate pro rata ownership interests in each company.

“We believe separation of our consumer-based and wholesale businesses could unlock additional value,” EchoStar chairman and CEO Charlie Ergen said in a prepared statement. “Each company would be able to separately pursue the strategies that best suit its respective long-term interests. The spin-off transaction would also allow employee incentives to be tied to their respective company’s performance, and improve opportunities to effectively develop and finance expansion plans,”

EchoStar made the announcement a day after saying it had reached an agreement to buy Sling Media, which would presumably be part of the technology spin-off.

The transaction to split EchoStar into two companies would be transparent to Dish Network’s over 13.585 million customers. Installation, customer service, billing and other consumer services would continue to be operated by Dish Network, together with most satellites and spectrum used to support that subscriber base. Ergen would continue to serve as chairman and CEO of Dish Network, and would fill the same roles with the spun-off company.

The spin-off assets would include, among other things, EchoStar’s set-top box design and manufacturing business, its international operations, and assets used to provide fixed-satellite services to third parties, together with satellites, uplink centers and spectrum licenses not considered core to Dish Network’s subscriber business.

“The recently announced acquisition of Sling Media further illustrates EchoStar’s commitment to delivering best-in-class consumer technology products enabling customers to enjoy their content anywhere, any time,” EchoStar said in its press release. 

The spin-off is subject to certain conditions, including, among others, final approval by EchoStar’s board of directors of the transaction, effectiveness of a securities registration statement, confirmation that the spin-off will qualify as a tax-free transaction for EchoStar and its shareholders and receipt of regulatory and other necessary approvals. Final terms and timing of the transaction have not yet been determined.

EchoStar is preparing a registration statement for filing with the Securities and Exchange Commission in connection with the spin-off.