DirecTV Not the Only DBS Player in Bidding Game

BY K. C. NEEL

As the number of bidders for DirecTV swells, EchoStar Communications CEO Charlie Ergen sits on the sidelines. But for how long?

?Charlie is just sitting back and watching,? says Yankee Group analyst Michael Goodman.

?But whoever buys DirecTV has a direct impact on EchoStar and he knows it. He may not be reaching out to anyone right now, but I think he's willing to listen.?

Ergen already reached out ? reportedly to News Corp. and Liberty Media ? in an attempt to sell his company after failing to buy DirecTV last year. And just this year EchoStar admitted it would entertain serious offers. A company spokesman reiterated that sentiment last week but declined to comment further.

Carmel Group president Jimmy Schaeffler isn't convinced. ?I don't think Charlie will sell,? Schaeffler says. ?He's too ensconced in the business.?

However, more people believe Ergen's appetite for a deal may be whetted, particularly as interest in DirecTV escalates. Goodman thinks both companies are at the peak of their value today. DBS growth is slowing and cable operators are beginning to offer products DBS can't compete with, notably high-speed data and video-on-demand. Ergen may want to sell now, Goodman says, while there's interest.

?Would it shock me if Liberty or someone else bought or partnered with EchoStar?? asks Ted Henderson, an analyst with Stifel, Nicolaus. ?No. I think Charlie would entertain talks at the right price. Wouldn't it be funny if EchoStar was sold before DirecTV??

At the pace things seem to be moving over at DirecTV, that's a distinct possibility. The longer DirecTV parent Hughes Electronics waits, the more bidders emerge. Early on it appeared News Corp. and/or Liberty were the only potential buyers. Then SBC Communications expressed interest, and now experts say NBC, Disney and Verizon may have a look.

Liberty and News Corp. could make separate bids; last week the The Wall Street Journal reported a joint proposal was off the table. However, analysts are split on which company has the upper hand. Scott Cleland, president of the Precursor Group, says bad blood between Hughes Electronics and News Corp. could hurt its chances.

Schaeffler agrees there is no love lost between the two camps, but thinks News Corp. will nonetheless walk away with DirecTV. Yankee Group's Goodman thinks Liberty chairman John Malone's wheeling and dealing acumen alone could lead to a victory.

?Regardless of who wins,? Schaeffler says, ?this could be one of the better horse races we've seen in a long time.?