Filed by EchoStar Communications
Corporation Pursuant to Rule 425
under the Securities Act of 1933 and
deemed filed pursuant to Rule 14a-12
under the Securities Exchange Act of
1934
Subject Company: Hughes Electronics
Corporation
Commission File No. 0-26035
Date: August 6, 2001
EchoStar Announces Proposal to Combine With Hughes Electronics for $32
Billion, or $23 Per GMH Share
Combination Would Establish Only Fully Competitive Alternative To U.S.
Cable/Broadband Providers, Providing Consumers More Channels, Better Service,
Greater Access To Broadband Services and Competitive Pricing
Synergies Could Create Up To Additional $56 Billion
LITTLETON, Colo.--Aug. 5, 2001-- EchoStar Communications Corporation (NASDAQ:
DISH) today announced that it has made a proposal to General Motors Corporation
(NYSE: GM) to combine with Hughes Electronics Corporation in a tax-free,
all-stock transaction. The holders of shares of Hughes tracking stock (NYSE:
GMH) would receive EchoStar common stock.
An EchoStar/Hughes combination would:
- Provide superior opportunity for GMH and GM shareholders to maximize
the value of their investment in Hughes;
- Establish the only fully competitive alternative to powerful U.S.
cable/broadband providers, particularly important in light of
increasing consolidation among the nation's large cable providers; and
- Boast a national footprint, with access to virtually all 100 million
U.S. TV households.
Highlights of EchoStar's proposal include:
- GMH shareholders to receive 0.75 EchoStar shares for each GMH share, or
$22.83 per GMH share based on EchoStar's closing stock price of $30.44
on August 3, 2001, representing a premium to GMH shareholders of
approximately 18 percent before the impacts of significant synergies;
- Hughes valued at $32.3 billion based on EchoStar's closing stock price
of $30.44
on August 3, 2001, including the assumption of $1.9 billion of Hughes
debt, before taking into account the enormous value of the synergies
that could be generated from the combination;
- Vast synergies of up to approximately $56 billion, net present value,
expected from the combination, to be shared by GMH, GM and EchoStar
shareholders as well as consumers;
- Synergies could provide GMH shareholders with up to an additional $37
billion net present value, or approximately $26 per GMH share, making
the total value of EchoStar's proposal as much as $49 per GMH share;
- Synergies could provide General Motors shareholders with up to an
additional $11 billion net present value, or approximately $20 per GM
share, making the total value of EchoStar's proposal as much as $38 per
GM share; and
- GM and GMH shareholders would together own approximately 66% of the
fully diluted equity in a combined company.
"This is an extremely compelling combination for GM, GMH and EchoStar
shareholders," said EchoStar Chairman and CEO, Charles Ergen. "The combination
of EchoStar and Hughes could create unparalleled synergies that will
substantially increase the value of the combined company. The GM board of
directors now has the opportunity to deliver that enormous value to GM and GMH
shareholders.
"The new company would have enhanced scale to compete effectively against the
large U.S. cable and broadband providers - a critical factor given increasing
consolidation in the cable industry. All shareholders will benefit from the
massive synergy opportunities that could be created by this combination and the
proven ability of EchoStar to consistently deliver shareholder value.
"U.S. consumers would also benefit from the combined company's ability to enter
new markets with local service, provide additional content, increase HDTV
offerings, accelerate the introduction of next-generation broadband services and
offer nationwide competitive pricing. Together, EchoStar and Hughes can also
provide a range of services that will bridge the `digital divide' - providing
high-speed broadband solutions to consumers and businesses in rural areas
otherwise far from the information superhighway. We are confident that this
transaction will receive the necessary regulatory approvals."
Attached is the full text of the August 5, 2001 letter from Charles W. Ergen,
chairman and chief executive officer of EchoStar, to General Motors' Board of
Directors:
Board of Directors
General Motors Corporation
300 Renaissance Center
Detroit, MI 48265-3000
Attention: Jack F. Smith, Jr., Chairman
Dear Members of the Board:
During the last several months, we have discussed with representatives of both
General Motors and Hughes Electronics a combination of Hughes and EchoStar that
would establish the only fully competitive alternative to the powerful U.S.
cable/broadband providers. The combined company's unrivaled satellite network
and subscriber base would enable it to achieve greater profitability than either
company would be able to achieve on its own.
Unfortunately, Hughes' and DirecTV's senior management have recently informed us
that they do not intend to pursue further discussions with EchoStar. In light of
the enormous
benefits of our proposed combination, we are submitting this proposal directly
to you for your consideration. We are confident that your shareholders will be
supportive of our proposal and enthusiastic about the extraordinary potential of
this combination. We note that eight of GMH's top ten institutional shareholders
are also holders of EchoStar common stock.
Under the terms of our proposal, EchoStar would issue 0.75 shares of common
stock for each GMH share, equivalent to $22.83 per GMH share based on EchoStar's
closing stock price of $30.44 on August 3, 2001. This represents a premium to
GMH shareholders of approximately 18 percent based on the closing price of GMH
shares on the same date. Our tax-free proposal represents total equity
consideration of approximately $32 billion to GMH and General Motors
shareholders. Based on the number of outstanding common shares on a fully
diluted basis, GMH shareholders and General Motors would own approximately 66
percent of the common equity of the combined company, and EchoStar shareholders
would own approximately 34 percent. EchoStar would also assume approximately
$1.9 billion of Hughes debt. General Motors' current approximately 30 percent
economic interest in Hughes would convert into EchoStar common stock with a
value of approximately $10 billion, or over $17 per GM share, before expected
synergies.
In addition to our $32 billion proposal, we have identified synergies with a net
present value of up to $56 billion, to be shared by GMH, GM and EchoStar
shareholders as well as consumers, that we believe could be achieved through a
combination of cost savings and the unparalleled growth opportunities inherent
in a Hughes/EchoStar combination. These expected synergies could be the
equivalent of an additional $26 per GMH share. Therefore, our proposal in total
could provide GMH shareholders with as much as $49 per GMH share. For General
Motors, the total potential value including expected synergies could be
equivalent to $21 billion, or approximately $38 per GM share.
We have identified potential cost savings with a net present value of
approximately $36 billion from, among other things:
- Reduced programming costs as a result of a larger subscriber base;
- Lower subscriber acquisition costs due to economies of scale - without
increasing costs to the consumers;
- Reduced subscriber churn due to increased services and higher customer
loyalty; and
- Elimination of duplicative general and administrative expenses.
Revenue opportunities with a net present value of $20 billion could be generated
from the following:
- Bridging the digital divide by providing immediate and high-speed
broadband solutions to consumers and businesses in less densely
populated areas;
- More than doubling the number of communities that have satellite access
to local programming, including news, sports and weather;
- Higher advertising and interactive revenue as a result of a larger
subscriber base and a broad, national reach; and
- Unmatched capacity, enabling the combined company to be the undisputed
leader in the rapidly growing HDTV market. The number of HDTV
households is expected to grow at a CAGR of over 60 percent through
2005;
- Expanded product offerings including specialty content channels,
video-on-demand (VoD), and Pay Per View driving sizeable growth in
annual revenue per subscriber.
As we indicated in our prior discussions, we were prepared to structure the
transaction so that General Motors would have been able to receive a significant
portion of its consideration in cash. That structure would have given GM the
option to require EchoStar to purchase PanAmSat from Hughes for a combination of
cash and EchoStar common stock prior to the merger of Hughes and EchoStar,
enabling General Motors to quickly convert a significant portion of its economic
interest in Hughes into cash. Additionally, we were prepared to enter into joint
operating agreements with Hughes in advance of the merger that would have
allowed GMH shareholders to begin to reap a meaningful portion of the benefits
to be created by the Hughes/EchoStar combination even before the merger would
have been completed. Because Hughes has indicated an unwillingness to pursue
this route -- and we believe the combination of EchoStar and Hughes will create
tremendous value -- we are now proposing an all-stock offer to you and your
shareholders in this letter.
We are confident GMH shareholders would welcome the opportunity to participate
in the upside potential of a combined Hughes/EchoStar. Industry analysts already
recognize the compelling logic of this combination. In addition, EchoStar common
stock represents a very attractive and liquid currency for GMH shareholders.
Since January 1, 1998, EchoStar common stock has appreciated in value by 1,354
percent, representing an annual rate of return of 111 percent. This compares
favorably to the annual rate of return of 13, 6, and 26 percent for GMH shares,
the S&P 500 and a five-company Cable Index, respectively, over the same period
of time.
[Chart showing the movement since January 1, 1998 in the stock prices of
EchoStar, GM, GMH, NewsCorp and a cable composite index consisting of Cox,
Cablevision, Adelphia, Charter and Comcast.]
EchoStar also enjoys a strong balance sheet, and our anticipated pro forma debt
of approximately $430 per subscriber and net debt of $220 per subscriber would
be significantly lower than any of the top ten multi-channel television
providers.
We would welcome the opportunity to meet with you at the earliest possible time
to reach agreement on a transaction to capture extraordinary value for our
respective shareholders. Our management team and advisors are committed to
devoting whatever resources are necessary to immediately complete our due
diligence and finalize mutually acceptable definitive agreements on appropriate
and customary terms. We have also given careful consideration to the regulatory
approvals this transaction would require. After extensive review by antitrust
experts, including David Boies, we are confident we can obtain such approvals in
a reasonable timeframe. In our discussions with your negotiating team, we were
pleased that you acknowledged that regulatory approval of our proposed
transaction is likely.
To ensure that your shareholders are apprised of the extraordinary value
afforded by a Hughes/EchoStar combination, we are publicly releasing the text of
this letter.
We look forward to your response. Very truly yours,
/s/
Charles W. Ergen
Chairman and Chief Executive Officer
Advisors
Sullivan & Cromwell is serving as legal counsel and Boies, Schiller & Flexner
LLP is serving as antitrust counsel to EchoStar.
About EchoStar Communications Corp.
DISH Network is a trademark of EchoStar Communications Corporation. DISH Network
is EchoStar's state-of-the-art direct broadcast satellite TV system that is
capable of offering over 500 channels of digital video and CD-quality audio
programming, as well as fully MPEG-2/DVB compliant hardware and installation.
DISH Network was ranked number one in overall customer satisfaction among
cable/satellite TV subscribers by J.D. Power and Associates in 1999 and 2000.
EchoStar is included in the Nasdaq-100 Index (NDX), which contains the largest
non-financial companies on the Nasdaq Stock Market. DISH Network currently
serves over 6 million customers.
Caution Concerning Forward-Looking Statements
This press release contains "forward-looking statements" within the meaning of
the Private Securities Litigation Reform Act of 1995. Such forward-looking
statements involve known and unknown risks, uncertainties and other factors that
could cause our actual results to be materially different from historical
results or from any future results expressed or implied by such forward-looking
statements. The factors that could cause actual results of EchoStar
Communications Corporation ("EchoStar") or a combined EchoStar and Hughes
Electronics Corporation ("Hughes") to differ materially, many of which are
beyond the control of EchoStar include, but are not limited to, the following:
(1) the businesses of EchoStar and Hughes may not be integrated successfully or
such integration may be more difficult, time-consuming or costly than expected;
(2) expected benefits and synergies from the combination may not be realized
within the expected time frame or at all; (3) revenues following the transaction
may be lower than expected; (4) operating costs, customer loss and business
disruption including, without limitation, difficulties in maintaining
relationships with employees, customers, clients or suppliers, may be greater
than expected following the transaction; (5) generating the incremental growth
in the subscriber base of the combined company may be more costly or difficult
than expected; (6) the regulatory approvals required for the transaction may not
be obtained on the terms expected or on the anticipated schedule; (7) the
effects of legislative and regulatory changes; (8) an inability by EchoStar to
obtain certain retransmission consents; (9) EchoStar's inability to retain
necessary authorizations from the FCC; (10) an increase in competition from
cable as a result of digital cable or otherwise, direct broadcast satellite,
other satellite system operators, and other providers of subscription television
services; (11) the introduction of new technologies and competitors into the
subscription television business; (12) changes in labor, programming, equipment
and capital costs; (13) future acquisitions, strategic partnership and
divestitures; (14) general business and economic conditions; and (15) other
risks described from time to time in EchoStar's periodic reports filed with the
Securities and Exchange Commission. You are urged to consider statements that
include the words "may," "will," "would," "could," "should," "believes,"
"estimates," "projects," "potential," "expects," "plans," "anticipates,"
"intends," "continues" or the negative of those words or other comparable words
to be uncertain and forward-looking. This cautionary statement applies to all
forward-looking statements in this press release.
Financial Analyst Meeting, Teleconference, and Webcast:
EchoStar will host an in-person financial analyst meeting on Monday, August 6,
2001 at 10:00 a.m. (EDT) to discuss its proposal. The meeting will be held in
Versailles Room at the St. Regis Hotel, located at 2 East 55th St., between Park
and Madison Avenues.
Investors, and others that are unable to attend the meeting may participate by
dialing 1-800-553-3709 (Domestic) or 1-303-267-1006 (International). Due to the
expected number of participants, please call at least 15 minutes before the
conference is scheduled to begin. Ask to be connected to the EchoStar
teleconference. A replay of the meeting will be available by dialing
1-800-625-5288 (Domestic) or 1-303-804-1855 (International) and entering
identification number 9002.
A live Internet broadcast of the meeting will also be available at
www.echostar.com by clicking on an available audio link. The meeting will also
be archived on the company's web site for replay purposes for two working days
after the live broadcast. Real Network's Real Player or Microsoft Media Player
is required to access the Webcast. They can be downloaded from www.real.com or
www.microsoft.com.
Press Teleconference Information:
EchoStar will also host a press teleconference Monday, August 6, 2001 at 12:00
p.m. (EDT) to discuss its proposal. The dial in number is 1-800-553-3709
(Domestic) or 1-303-267-1006 (International). A replay of the press
telelconference will be available by dialing 1-800-625-5288 (Domestic) or
1-303-804-1855 (International) and entering identification number 9003.
Other Information:
A copy of the graph that is included in the attached letter that compares
EchoStar's stock price appreciation since January 1, 1998 offering to GMH
shares, the S&P 500 and Cable Index will be available on EchoStar's website at
www.dishnetwork.com.
CONTACTS: Analysts:
EchoStar Communications Corporation
Jason Kiser, 303/723-2210
or
Media:
EchoStar Communications Corporation
Judianne Atenacio, 303/723-2010
303/886-3950 (Cell)
or
Citigate Sard Verbinnen
Drew Brown/Jim Barron/Jonathan Gasthalter
212/687-8080
INFORMATION REGARDING PARTICIPANTS
Echostar and the following persons may be deemed to be "participants" on behalf
of EchoStar in the solicitation of proxies from GM and GMH shareholders.
Charles W. Ergen Chairman and Chief Executive Officer
David K. Moskowitz Senior Vice President,General Counsel and Secretary
Michael R. McDonnell Senior Vice President and Chief Financial Officer
Jason Kiser Treasurer
As of August 6, 2001 EchoStar beneifically owned 1,000 shares of GeneralMotors
common stock and 185,000 shares of Hughes tracking stock. Mr. Ergen beneficially
owns approximately 1,000 shares of General Motors common stock and approximately
10,000 shares of Hughes tracking stock.
Other than as set forth herein, as of the date hereof, neither EchoStar nor any
of the other participants listed above has any substantial interest, direct or
indirect, by security holdings or otherwise, in General Motors or Hughes.
Subject to future developments, EchoStar may file with the Securities and
Exchange Commission a registration statement at a date or dates subsequent
hereto to register the EchoStar shares to be issued in the proposed transaction.
Investors and security holders are urged to read the registration statement
(when and if available) and any other relevant documents filed with the SEC, as
well as any amendments or supplements to those documents, because they will
contain important information. Investors and security holders may obtain a free
copy of the reigstration statement (when and if available) and other relevant
documents at the SEC's Internet web site at www.sec.gov. The registration
statement (when and if available) and other relevant documents may also be
obtained free of charge from EchoStar by directing such request to: EchoStar
Communications Corp., 5701 South Santa Fe Drive, Little, CO 80120, Attention:
Investor Relations.