Satellite deal between EchoStar, Hughes off

NEW YORK : It was a deal that could have created a satellite behemoth. But US satellite television service provider EchoStar Communications Corp, on Tuesday said it had abandoned its proposed $18 billion acquisition of larger rival Hughes Electronics Corp due to stiff opposition from regulators.

Both the US Justice Department and the Federal Communications Commission, which feared the deal would stifle competition in the pay TV market were successful in killing the deal. Hughes, which operates the DirecTV service, and EchoStar, which owns the Dish Network, said in a joint statement that they had agreed to end the deal because it "could not be completed within the time allowed by the merger agreement." 

The deal, announced in October 2001, was supposed to help both companies compete successfully with cable operators, and envisioned offering local television service in every US market, apart from offering high speed Internet access via satellite to rival the services offered by cable companies. Each currently only has enough capacity to offer local channels in a portion of the country on its own. 

Regulators however foresaw 'too much power in rural markets that had no access to cable' in the proposed merger. The Justice Department and 23 states sued to block the merger, with a federal judge setting a trial date for late February at the earliest. Authorities also maintained that even in areas cable was available, viewers' choices would be effectively be reduced to two from the earlier three. 

Under the terms of the deal, Hughes had the right to walk away from the deal after Jan. 21 and collect a $600 million break-up fee. EchoStar was also obligated to buy Hughes' 81 percent stake in satellite service PanAmSat Corp. for $2.7 billion. But in an agreement to abandon the deal early, EchoStar agreed to pay the break-up fee, but was released from its obligation to buy PanAmSat. 

EchoStar will write off about $700 million in the fourth quarter for the merger break-up fee and other related expenses. 

The termination now opens the doors for Hughes to pursue other potential deals, including one time suitor News Corp, although neither company was willing to go on record about it, say reports. Last year, News Corp. proposed combining Hughes with his own network of satellite services and spinning the entity off as a publicly trade company, with Microsoft Corp. and Liberty Media Corp. contributing cash to the venture to buy out GM's stake, reports say.

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