EchoStar Communications Corp.’s plan to possibly split the company in two buoyed analysts and shareholders concerned that the satellite- television provider might lose market share as competition increases.
The Douglas County-based company said Tuesday that its board of directors is considering creating two companies. If such a move occurs, Echo Star, whose Dish Network serves 13.6 million satellite subscribers, would spin out its technology division into a new publicly traded company.
“(Charlie) Ergen is trying to build his portfolio, so he’s got more bases to protect him if one doesn’t perform as well as he’d like,” Jimmy Schaeffler, senior multichannel TV analyst for the Carmel Group, said of EchoStar’s co-founder, chairman and chief executive. “The competition – cable – has a bundle of services, and they have a huge pipe to the home to deliver everything.”
The move also is an effort to realize more value from the company’s technology arm, which develops, designs and manufactures set-top boxes and digital video recorders, said Janco Partners research analyst April Horace.
EchoStar said in a news release that splitting the company is dependent on a getting a ruling from the IRS that the move could be done tax-free.
Ergen would be chairman and CEO of both companies. Ergen was not available for comment Tuesday.
Investors responded enthusiastically, as shares of the nation’s second-largest satellite- TV provider shot up 6.8 percent, or $2.82, to $44.14.
Tuesday’s move comes on the heels of a Monday-night announcement that EchoStar would acquire Sling Media for $380 million. Foster City, Calif.-based Sling makes a line of products called the Slingbox, which lets users watch their home TV, DVD and DVR programs on any computer, laptop or cellphone with an Internet connection.
EchoStar has been an investor in Sling Media since January, when the company was looking for its second round of funding.
EchoStar’s announcement set off a groundswell of speculation among analysts about EchoStar’s long-term goals.
Sanford C. Bernstein & Co. senior analyst Craig Moffett said: “The potential spinoff will trigger renewed speculation about possible merger- and-acquisition transactions.”
For years, industry-watchers have speculated that EchoStar and satellite-TV leader Direc TV might attempt a merger. Those rumors intensified when Douglas County-based Liberty Media acquired a 38 percent stake in DirecTV last year.
Some said the spinoff positions Dish Network to be acquired by AT&T.
“We believe this restructuring improves the chances that AT&T will eventually acquire (EchoStar’s) video business,” wrote UBS analyst John Hodulik in a research note.
AT&T and Verizon bundle Dish Network TV service with their suite of phone and Internet service in many areas across the country.
Others saw it as just smart business.
“Does this portend to something bigger strategically? I don’t think so,” said Kauffman Bros. analyst Todd Mitchell. “I think (Ergen) is buying Sling because he wants to add that feature to regular set-top boxes.”
Mitchell said EchoStar’s technology generates up to $400 million in revenue annually, on which EchoStar currently “is not getting any value.”
“EchoStar’s technology assets could receive a valuation in the $1 billion-to-$2 billion range, thus creating about $1 to $3 per share for DISH shareholders.”
Schaeffler said the move makes sense.
“It puts them on a whole new level in the mobile-content-to- mobile-device sector,” he said. “The breakup of the company gives them additional flexibility. … Anything they do, it’s of value to shareholders and a good thing for the company. It’s hard to find downsides with any of these moves.”
The proposed spinoff and acquisition of Sling Media are intrinsically tied, as EchoStar looks to not only beef up its technology unit but differentiate itself in a market overflowing with DVRs and set-top boxes from companies such as TiVo and Motorola.
For EchoStar, Sling’s groundbreaking technology may eventually wind up in Dish Network set-top boxes, while the deal gives Sling the marketing and sales muscle it needs to get its products out to a wider audience. Slingboxes are available at local retail stores.
“We’ll take every opportunity we can, not only to leverage Sling’s technology into Dish Network homes but (to leverage) Dish technology into the Sling Media product line,” said Rich Buchanan, vice president of marketing for Sling Media.
EchoStar president Carl Vogel declined to comment Tuesday as the company is in the process of making regulatory filings related to the spinoff. Ergen and EchoStar Technologies president Mark Jackson visited Sling Media’s Forest City offices Monday evening to speak with employees, Buchanan said.
Other EchoStar technology assets include EchoStar’s international operations, assets used to provide fixed-satellite services to third parties, satellite-uplink centers and spectrum licenses, which the company does not consider core to the Dish Network TV business.
Schaeffler said EchoStar is unique because of its heavy investment in the hardware associated with pay-TV technology. Cable companies, by comparison, tend to invest in programming, getting their set- top boxes from a third party.
“Ergen is bucking that trend and getting into hardware,” Schaeffler said. “He’s the only major company not involved in programming in the whole industry.”
Staff writer Kimberly S. Johnson can be reached at 303-954-1088 or kjohnson@denverpost.com.
