Forget about the money.
True, EchoStar (news/quote) is offering about $30 billion for Hughes Electronics and its DirecTV business. But the price a significant premium over a pending offer from Rupert Murdoch's News Corporation (news/quote) is almost beside the point.
But even if EchoStar is able to overcome initial resistance and persuade Hughes and its parent, General Motors (news/quote), to accept its offer, the real battle will be in Washington.
DirecTV, with about 10 million subscribers, is the nation's biggest satellite TV operator. EchoStar, whose Dish Network has more than 6 million customers, is No. 2. So regulators would be likely to take a hard look at such a deal, and even the most optimistic analysts and legal experts peg the chances of winning approval at only 50- 50. Those would be bad odds, unless EchoStar were to raise its offer price to such a level that the potential rewards to G.M. would outweigh the risk of a lengthy regulatory review's ending in defeat.
G.M.'s board is scheduled to meet today and is expected to look at EchoStar's unsolicited offer, which was made Sunday. The board had already planned to meet to work out the final details of its long-running negotiations with News Corporation, which has agreed to a complex deal that basically pays no premium over the market value of Hughes and DirecTV.
For G.M., because News Corporation has no satellite television operation in the United States, it is a much safer buyer, from a regulatory standpoint.
And yet, antitrust experts say there could be quite legitimate arguments that combining EchoStar and Hughes would be beneficial for consumers and should be approved even if the merged company would essentially monopolize the market for satellite television in the United States.
EchoStar and even some of its competitors contend that the market in which EchoStar and Hughes compete in is much larger than the satellite television business. Already, EchoStar and Hughes compete more against cable television operators than they do against each other.
If the market is broadly defined as multichannel television systems, which includes both satellite and cable, even a combined EchoStar- Hughes would control only 18 percent share of the national market. That figure is only slightly higher than the market share of the nation's biggest cable operator, AT&T (news/quote) Broadband, which is currently the target of an unsolicited takeover offer from Comcast (news/quote).
And yet, between them, EchoStar and Hughes do also serve a much more captive market: rural America. Satellite television has so far made its greatest inroads in less populous areas where cable television is generally not available.
"The whole deal hinges on market definition," said Glenn B. Manishin, an antitrust lawyer at the firm Patton Boggs in Washington. "There is a difference between a product market and a geographic market." If an EchoStar-Hughes deal were considered on a product-market basis, Mr. Manishin said, regulators might be much more receptive than if they choose to judge it on a geographic- market basis.
Anticipating regulatory concerns, EchoStar has proposed offering a nationwide pricing plan that would prevent it from forcing rural satellite customers that do not have other television options from paying more than satellite urban customers with access to cable television.
A half-dozen lawyers interviewed for this article were divided about whether such a plan would appease regulators, who are often wary of pricing remedies because they can be hard to enforce.
"The issue will be `maybe they will just jack up the price for everybody by a couple of bucks,' " said Mr. Manishin. Even so, he was one of the lawyers who said a fair nationwide pricing plan could pass regulatory muster.
Antitrust officials would also be likely to consider any barriers that might make it difficult for new competitors to enter the satellite TV market. Analysts said the barriers included the high cost of launching a new satellite network, as well as the scarcity of satellite broadcasting spectrum and available slots for parking satellites in orbit.
Still, in a news conference yesterday, EchoStar's chairman and chief executive, Charles W. Ergen, said the chances for approval were good. "I think that particularly if you compare us to some of the alternatives," he said, "this is going to be an attractive deal for regulators because we're just not involved in the cable industry and we don't own programming."
Certainly, investors were placing their own bets on EchoStar's prospects yesterday. The company's shares fell $1.65, or 5.4 percent, to $28.79, slimming the premium it offered for Hughes to 7.7 percent from 18 percent.
Shares of Hughes, which trade as a G.M. tracking stock, rose 68 cents, or 3.5 percent, to $20.04.
The net effect was to reduce the premium of EchoStar's offer to 7.7 percent above Hughes's market value, compared with the 18 percent premium when the offer was made the day before.
Shares of News Corporation's American depositary receipts, each of which represents four ordinary shares, fell 80 cents, to $37.45.
Comparing the News Corporation offer with EchoStar's is difficult. The News Corporation proposal, which has never officially been made public, is complicated, according to executives close to the talks. It calls for the News Corporation to merge its international satellite television business the largest in the world with that of Hughes in a new company, creating a worldwide operation worth $50 billion. While the News Corporation would own only about 35 percent of the combined company, it would wield control. Yet the Hughes shareholders would own more than half of the company, making the sale tax-free for them, the executives said.
The News Corporation, with the backing of partners like Microsoft (news/quote) and Liberty Media would inject as much as $7 million in cash to appease G.M.'s want to shore up its balance sheet. The logic behind this deal is that the new mammoth-sized satellite business will create additional value through better management and significant cost savings.
EchoStar's offer is much more straightforward. EchoStar will pay about $30 billion in stock for Hughes, with Hughes and G.M. shareholders controlling 64 percent of the company. While its offer has no cash component, Mr. Ergen suggested the company might be willing to adjust its offer under the right conditions.
He also argued that EchoStar's stock would give Hughes and G.M. investors a very liquid asset.