Media giant Vivendi Universal said on Friday it would pay $1.5 billion for a 10 percent stake in No. 2 U.S. satellite television firm EchoStar Communications Corp., securing crucial U.S. distribution for its vast film, TV and music programming.
The eight-year deal gives EchoStar much-needed cash as it pursues a $27 billion merger with its larger rival, Hughes Electronics Corp., parent of satellite operator DirecTV. Vivendi will own a little under 5 percent, assuming that merger is approved by U.S. regulators.
Vivendi, in turn, plans to create five new satellite channels delivering programming from its film library, which includes such films as “Jurrasic Park” and “Jaws,” and other entertainment properties for EchoStar’s 6 million subscribers. If the EchoStar-Hughes deal is successful, Vivendi gains access to over 16 million subscribers.
Shares in Vivendi fell 1.6 percent to 53.70 euro in Paris, while EchoStar stock rose 2 cents, or 0.1 percent, to $25.92 at the close on the Nasdaq stock market.
USA NETWORKS TALKS
As part of its overall strategy to expand its entertainment empire, Vivendi Universal is also in talks to buy USA Networks Inc.’s cable channels, film and television production business, valued by analysts at about $9 billion to $12 billion.
USA Networks’ cable channels, USA Network and Sci-Fi, would then serve as possible outlets for the combined company’s film and television library.
Vivendi Universal chief executive Jean-Marie Messier told reporters on Friday that the EchoStar distribution deal would make a potential deal with USA Networks more attractive.
“There is a clear trend of integration and consolidation movement in the entertainment industry, bringing together movies and TV production and distribution,” Messier said. “Obviously full integration of our entertainment assets and USA Networks would represent a major step in that field.”
EchoStar plans to use the cash from Vivendi to pay down part of the $5.5 billion in bridge loans needed to win its takeover bid for General Motors Corp.’s Hughes.
“This puts us on a strong financial footing to move forward on our transaction with Hughes,” EchoStar Chairman and CEO Charlie Ergen told a conference call.
The deal is expected to close in four to six weeks, Messier said.
Analysts said Vivendi seemed to be assuming that the EchoStar/Hughes deal would be cleared by regulators.
“Vivendi is paying quite a lot for 10 percent in an operator with six million subscribers. It only really seems worthwhile if the merger with Hughes goes through, and then we’re talking about 5 percent in the uncontested leader with an extra 10 million subscribers (from DirecTV),” said a Paris-based analyst.
“The price values EchoStar subscribers at $2,500 per head, which seems to me expensive for Vivendi,” he added.
Messier said it had no intention of making equity investments in any other U.S. distribution partner, but he would actively pursue other arrangements with other cable operators.
“This alliance will fill our desire to have one close strong partner in the U.S. distribution world,” he said “But none of these agreements are exclusive. We continue to want our content to be on as many platforms as possible.”
He estimated that his channels would have twice as many subscribers on other distribution platforms as EchoStar subscribers.
EchoStar will also use Canal Plus’ interactive television technology “MediaHighway,” which would allow movies and digital music, courtesy of Universal Music Group, to be stored on a subscriber’s set-top box. Canal Plus is the European pay-TV arm of Vivendi.
This technology will help EchoStar compete with the new generation of digital set-top boxes being introduced by rival cable competitors.
EchoStar deploys between 4 million and 5 million set-top boxes annually, Ergen said. He expects that approximately half of those will be advanced digital boxes with the MediaHighway software.
Vivendi said Messier would remain on EchoStar’s board of directors after the completion of its merger with Hughes.
Credit Suisse First Boston advised EchoStar in the transaction.