Hughes downgrading adds to
uncertainty of EchoStar deal
NEW YORK - EchoStar, already facing a potentially long-running regulatory battle, saw its chance of completing its $26bn (£18bn) DirecTV deal take a hit as credit risk agency Moody's downgraded Hughes Electronics to junk status.
The downgrade of the General Motors unit, which houses DirecTV, was justified because of rising debt and poor operating performance. The news sent Hughes and EchoStar's shares falling, with Moody's talking of the possibility of future downgrades.
The downgrade comes as EchoStar looks to secure around $5.5bn (£3.8bn) in financing for its deal, which was accepted by the GM board over News Corporation's bid at the weekend.
GM went with a higher offer, but they face an uphill struggle to convince Washington regulators that the new dominant satellite company with 17.6m customers will not be anti-competitive.
In an interview, Echostar chairman and CEO Charles Ergen, said, "I know there will be a lot of political pressure from all sides against this. This is not the status quo. This is not the good ol' boys network. There are a lot of people who are not going to want this deal."
A furious Rupert Murdoch, News Corp chairman, is already known to have already secured backing in Washington in support of his argument that an EchoStar-DirecTV tie-up is anti-competitive on the grounds that there will be no competition in the satellite pay-TV industry.
One of the main concerns is that the $26bn (£18bn) EchoStar deal will leave no choice for the 9m homes in rural parts of the US that do not have the option of subscribing to cable because the networks do not pass them.
This creates a powerful argument and Murdoch can be assured of support from senators and representatives from rural areas.
Scott Cleland, chief executive of Washington investment research firm the Precursor Group, told the New York Times, "DirecTV and EchoStar are whipping cable in the marketplace today. There is no legitimate argument why they have to merge to compete with cable. If this was decided on the anti-trust merits, it would be an obvious blockage."
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