tessa8940
10-02-2007, 03:17 PM
Echostar Announcements Send Good Signals
By ERIC J. SAVITZ
Gadget of the Week
SOMETHING FASCINATING IS GOING to happen to EchoStar, operator of the DISH Network satellite television service. If only I could tell you what it will be.
EchoStar stirred things up in the pay-television market last week with a pair of rather remarkable announcements.
First, the company revealed plans to acquire Sling Media, maker of the Slingbox, a nifty device that allows you to watch video from cable, satellite service or even a DVR on any PC or handheld device with broadband Internet access. The concept is called "place-shifting" -- a Phillies fan with Comcast service could sit in a hotel room in Boston, Barstow or Barcelona, plug in her PC, and watch Harry Kalas calling another Ryan Howard home run: ("That ball is outta here!"). It's like the flip side of what the DVR allows, which is "time-shifting." EchoStar (ticker: DISH), which was an early investor in Sling Media, is paying $380 million in cash and stock options for the rest of the company.
Announcement two was that EchoStar is planning to split into two companies, so far unnamed. I'd bet one will be called DISH Network, since that will be its entire business: operating the consumer satellite-television service. The other unit will consist of the company's remaining assets, which include spare satellite capacity and related ground stations, set-top box manufacturing and design assets, and Sling Media.
What does it all mean? For starters, it means EchoStar shares are worth more today than they were a week ago. Why? The DISH Network as a stand-alone business is expected to get a higher multiple, since it will be less capital-intensive than while buried inside today's Echostar. And splitting off the technology business opens up new prospects, like supplying set-top-box software and even hardware to other service providers. Finally, it's possible that the two announcements are a prelude to another bigger one: an acquisition of the DISH Network.
Tech-Crazed: Investors are mad for tech stocks like Apple and Research In Motion. The Nasdaq Composite Index finished Friday at 2702, up 1.1% for the week and about 4% for the month and quarter.
This is hardly the first time EchoStar's been considered a potential seller. In 2002, the company had agreed to merge with chief rival DirecTV (DTV), but the deal was struck down by federal regulators for antitrust reasons. Yet rumors of a second attempt to combine with DirecTV resurface periodically, and cropped up again last week -- more on that in a moment.
The other oft-rumored potential suitor for the company is AT&T (T). In fact, TheStreet.com last week reported that AT&T has offered to buy the company for $55 a share. As noted in my Tech Trader Daily blog, that "news" had the stock on the rise late last week. Some skeptics think AT&T ought to make a U-turn on U-verse (Ma Bell's video service), which is costing the company billions to build.
Thomas Eagan, an analyst at Oppenheimer, last week raised his rating on EchoStar to Buy from Hold, and asserted that, given the lack of success AT&T is having with U-verse so far, the company needs a new strategy. And given the fact that AT&T has for some time now been reselling DISH service to its customers, buying the company has a certain logic. Eagan, in fact, contends that when it comes to AT&T buying EchoStar it is "a matter of when, not if." Consistent with the rumormongers at TheStreet, Eagan says DISH could be worth $56 in a takeout.
One question underlying the EchoStar saga is how long EchoStar CEO Charlie Ergen wants to keep running the show. Eagan contends Ergen is "the consummate poker player," who could simply run the company for another 20 years, but is "more likely to sell at the opportune time." Eagan thinks that with DISH fundamentals strong and U-verse faltering, "that time is approaching."
That's all very convincing -- I was convinced -- until I talked to Gerard Hallaren of research boutique JRPG.com. Hallaren is just as bullish on EchoStar as Eagan is, but for entirely different reasons. He thinks John Malone's Liberty Media, which recently bought Rupert Murdoch's controlling stake in DirecTV, might want to consolidate his position and merge DirecTV and DISH. That sounds iffy, given that the Feds killed a proposed merger once before; but Hallaren thinks it could turn out differently this time. The fate of the pending merger of satellite-radio companies XM and Sirius could provide some clues on how a satellite-TV merger might fare.
If there isn't any merger, Echostar has the chance to use its new acquisition to truly differentiate itself from both DirecTV and the cable companies. TiVo (TIVO), the pioneer in time-shifting television, has been marginalized by widespread distribution of DVRs by the cable companies. But imagine a set-top box that can not only record your favorite programs, but also serve them up to you from a remote location whenever you like. Comcast can't do that; DirecTV can't do that; AT&T and Verizon can't do that.
Hallaren's particularly bullish on Echostar's relationship with wireless-broadband provider Clearwire (CLWR): their deal will give EchoStar the ability to offer the same bundle of services now offered by the cable companies, with video, broadband and telephony. (The catch: Clearwire has only rolled out service in a few markets so far.) He also notes that Clearwire and Sprint have a deal to combine forces on a shared national broadband wireless network; he thinks Sprint could also be included in the bundle with EchoStar and Clearwire to create a quadruple play that would also include mobile telephony. The biggest advantage of having the ability to offer multiple services, he adds, is reduced customer churn: the more services consumers take, the less likely they are to leave. Says Hallaren: "If you run any kind of numbers on this, the earnings leverage is amazing."
By ERIC J. SAVITZ
Gadget of the Week
SOMETHING FASCINATING IS GOING to happen to EchoStar, operator of the DISH Network satellite television service. If only I could tell you what it will be.
EchoStar stirred things up in the pay-television market last week with a pair of rather remarkable announcements.
First, the company revealed plans to acquire Sling Media, maker of the Slingbox, a nifty device that allows you to watch video from cable, satellite service or even a DVR on any PC or handheld device with broadband Internet access. The concept is called "place-shifting" -- a Phillies fan with Comcast service could sit in a hotel room in Boston, Barstow or Barcelona, plug in her PC, and watch Harry Kalas calling another Ryan Howard home run: ("That ball is outta here!"). It's like the flip side of what the DVR allows, which is "time-shifting." EchoStar (ticker: DISH), which was an early investor in Sling Media, is paying $380 million in cash and stock options for the rest of the company.
Announcement two was that EchoStar is planning to split into two companies, so far unnamed. I'd bet one will be called DISH Network, since that will be its entire business: operating the consumer satellite-television service. The other unit will consist of the company's remaining assets, which include spare satellite capacity and related ground stations, set-top box manufacturing and design assets, and Sling Media.
What does it all mean? For starters, it means EchoStar shares are worth more today than they were a week ago. Why? The DISH Network as a stand-alone business is expected to get a higher multiple, since it will be less capital-intensive than while buried inside today's Echostar. And splitting off the technology business opens up new prospects, like supplying set-top-box software and even hardware to other service providers. Finally, it's possible that the two announcements are a prelude to another bigger one: an acquisition of the DISH Network.
Tech-Crazed: Investors are mad for tech stocks like Apple and Research In Motion. The Nasdaq Composite Index finished Friday at 2702, up 1.1% for the week and about 4% for the month and quarter.
This is hardly the first time EchoStar's been considered a potential seller. In 2002, the company had agreed to merge with chief rival DirecTV (DTV), but the deal was struck down by federal regulators for antitrust reasons. Yet rumors of a second attempt to combine with DirecTV resurface periodically, and cropped up again last week -- more on that in a moment.
The other oft-rumored potential suitor for the company is AT&T (T). In fact, TheStreet.com last week reported that AT&T has offered to buy the company for $55 a share. As noted in my Tech Trader Daily blog, that "news" had the stock on the rise late last week. Some skeptics think AT&T ought to make a U-turn on U-verse (Ma Bell's video service), which is costing the company billions to build.
Thomas Eagan, an analyst at Oppenheimer, last week raised his rating on EchoStar to Buy from Hold, and asserted that, given the lack of success AT&T is having with U-verse so far, the company needs a new strategy. And given the fact that AT&T has for some time now been reselling DISH service to its customers, buying the company has a certain logic. Eagan, in fact, contends that when it comes to AT&T buying EchoStar it is "a matter of when, not if." Consistent with the rumormongers at TheStreet, Eagan says DISH could be worth $56 in a takeout.
One question underlying the EchoStar saga is how long EchoStar CEO Charlie Ergen wants to keep running the show. Eagan contends Ergen is "the consummate poker player," who could simply run the company for another 20 years, but is "more likely to sell at the opportune time." Eagan thinks that with DISH fundamentals strong and U-verse faltering, "that time is approaching."
That's all very convincing -- I was convinced -- until I talked to Gerard Hallaren of research boutique JRPG.com. Hallaren is just as bullish on EchoStar as Eagan is, but for entirely different reasons. He thinks John Malone's Liberty Media, which recently bought Rupert Murdoch's controlling stake in DirecTV, might want to consolidate his position and merge DirecTV and DISH. That sounds iffy, given that the Feds killed a proposed merger once before; but Hallaren thinks it could turn out differently this time. The fate of the pending merger of satellite-radio companies XM and Sirius could provide some clues on how a satellite-TV merger might fare.
If there isn't any merger, Echostar has the chance to use its new acquisition to truly differentiate itself from both DirecTV and the cable companies. TiVo (TIVO), the pioneer in time-shifting television, has been marginalized by widespread distribution of DVRs by the cable companies. But imagine a set-top box that can not only record your favorite programs, but also serve them up to you from a remote location whenever you like. Comcast can't do that; DirecTV can't do that; AT&T and Verizon can't do that.
Hallaren's particularly bullish on Echostar's relationship with wireless-broadband provider Clearwire (CLWR): their deal will give EchoStar the ability to offer the same bundle of services now offered by the cable companies, with video, broadband and telephony. (The catch: Clearwire has only rolled out service in a few markets so far.) He also notes that Clearwire and Sprint have a deal to combine forces on a shared national broadband wireless network; he thinks Sprint could also be included in the bundle with EchoStar and Clearwire to create a quadruple play that would also include mobile telephony. The biggest advantage of having the ability to offer multiple services, he adds, is reduced customer churn: the more services consumers take, the less likely they are to leave. Says Hallaren: "If you run any kind of numbers on this, the earnings leverage is amazing."