65% Chance AT&T Buys EchoStar - Citigroup

In a research note titled "Expect AT&T to Acquire EchoStar," Citigroup analyst Jason Bazinet told investors Tuesday recent strength in EchoStar shares is likely due to the prospect of a tie-up between it and AT&T. Bazinet surmises EchoStar's recent announcement of a tax-free spinoff of some of its non-core assets was likely a ploy to force AT&T's hand, since the creation of a tax-free spinoff would likely preclude AT&T from acquiring the assets for two years. Press reports suggest EchoStar is asking for $65/share, which he says may be low: EchoStar's current subscriber base is likely worth $41/share. By selling to AT&T today and forfeiting the ability to merge with DirecTV, EchoStar is forfeiting synergies of about $27 per share, suggesting EchoStar should ask for about $68/share ($41 + $27). An EchoStar acquisition would give AT&T "a technical hedge against potential speed-bumps" related to its current fiber strategy, and would give AT&T "a national footprint to pursue a wireless triple-play" (DBS video, wireless voice and data). Bazinet gives the deal a 65% chance over the next 12 months. EchoStar shares are up 1.8% at $49.93; AT&T shares are up 0.5% to $42.37.

Commentary: EchoStar's a Buy on AT&T Buyout Speculation • AT&T Buyout of Echostar "Less Likely" • EchoStar Continues To Rise on Acquisition Speculation
Stocks to watch: T, DISH, DTV. Competitors: S, VZ, DT, Q. ETFs: TTH, VOX

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Comments

[King Kang:]

What is the logic behind AT&T trying to get into the satellite cable business? To me DirecTV seems like a much better fit for EchoStar, although to be fair AT&T may have the advantage in starting initial negotiations www.newsvisual.com/new... if this deal actually does go somewhere, but not by much.

2007 Oct 16 05:26 PM