ECHOSTAR BEGINS TAKEOVER OF STARBAND
EchoStar will acquire majority of Gilat subsidiary Starband in deal that adds to EchoStar Internet service offerings while giving Starband cash and support it needs, companies said Wed. Plans call for EchoStar first to increase its stake in Starband 13% to 32%, ballooning to 60% once it begins construction of next generation satellite for Starband next year. Satellite analyst estimated deal to be worth $300 million: “Obviously this takes a big load off Gilat’s back.” Starband’s financial struggles have been widely documented since it opened 2-way Internet service in early, and EchoStar has been looking for ways to increase holdings and bundle Internet and DBS services. It wouldn’t comment on how Starband deal might affect talks for DBS rival DirecTV, which reportedly was close to finalizing agreement with News Corp.
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Terms of Starband agreement were finalized late Tues., Starband spokeswoman said: “We had been looking for additional capitalization. It’s just makes sense for EchoStar. We've been talking about this for a long time.” EchoStar is one of largest distributors of Starband service and one of its original investors. Companies expect deal to close within 30 days. Starband, EchoStar and Gilat board have approved deal, but regulatory approval is needed. As new managing partner, EchoStar will have 4 of 7 seats on Starband board, and Gilat Satellite will have 3 others that will be held by Gilat Chmn. Yoel Gat, Starband CEO Zur Feldman and Brian Friedman of ING Furman Selz Investments. Third partner, Microsoft, won’t have seat on board, but Starband will continue to have other partners and strategic alliances, spokeswoman said.
Feldman said company was “very excited” EchoStar had provided “increased funding and critical infrastructure investment.” He said EchoStar would provide Starband with “strong distribution, satellite expertise, attractive product bundling opportunities and first-hand knowledge” about growing business.
New arrangement with EchoStar reduces Gilat stake to 22% from 45%. EchoStar spokesman refused to speculate on how much additional stake might be worth. However, Starband is looking for big boost from 23,000 EchoStar dealers and 4 million subscriber base. Starband has 44,000 subscribers. “Now we are on a much more aggressive growth path,” Starband spokeswoman said. EchoStar spokesman said firm would be among first to provide truly “high- speed Internet service and DBS offerings in bundled package” to consumers. “This provides for the long-term viability” of service, he said.
No FCC license transfer is involved in deal for satellites because Starband has been leasing transponders from GE Americom and Loral, but EchoStar also will fund construction of satellites as part of deal, Starband and EchoStar said. Next-generation satellite will be used for Internet access and cost efficiencies for both companies. Gilat will provide EchoStar with proprietary design technology and engineering expertise to construct and operate satellite.
Satellite tentatively has been named Starband 1 by Starband, but EchoStar spokesman said company still was working out arrangements for bird and “none of the satellite details are available yet.” He said company had option of using another satellite planned for construction. Contracts for construction and launch vehicles also are pending, but satellite is expected to be built by end of year, spokesman said: “It’s going to take some time to make all of those decisions. Our primary responsibility is to provide the satellite capacity. There are multiple scenarios that we can come up with” to keep terms of agreement.