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For deal watchers, the greatest show on earth at present may be Hughes Electronics Corp.’s high-wire act. With the company’s merger with EchoStar Communications Corp. teetering, the DirecTV parent must balance between publicly forging ahead with the $20 billion merger and planning what to do if, as expected, the transaction comes tumbling down. “DirecTV has to walk the tightrope of keeping up the appearance of wanting a deal with EchoStar and at the same time keep News Corp. interested in case things fall apart with EchoStar,” said David Kaut, analyst at Legg Mason Inc. in Washington, D.C. “DirecTV doesn’t want to be accused of sabotaging the deal, but they also don’t want to do a deal that doesn’t make sense.” DirecTV stands to lose $600 million in termination fees and risks negating the $2.7 billion sale of its PanAmSat Corp. unit if EchoStar’s CEO, Charlie Ergen, can blame Hughes for undermining the deal. In other words, if regulators don’t approve the deal by Jan. 21, DirecTV could start up talks with other potential buyers, while collecting on the fee and shedding the ailing division. Indeed, experts said DirecTV could stall the federal antitrust review without legally breaching terms of its ill-starred merger. “DirecTV could take longer to get back to EchoStar when EchoStar has a question about some of DirecTV’s financial data,” Kaut said. “But they have to be careful not to overdo it.” With U.S. Assistant Attorney General Charles James deciding to resign as head of the antitrust division, DirecTV also could ask the Department of Justice to extend the review period, said Robert Lande, a director at the American Antitrust Institute in Washington. “New leadership at the antitrust agency is a legitimate cause for concern, and DirecTV could use that to its advantage to slow down the review process,” Lande said. One antitrust lawyer said DirecTV likely will ask the Federal Communications Commission to review the PanAmSat deal independently from the EchoStar-DirecTV merger. FCC commissioners have referred the merger to an internal administrative law hearing that could take up to six months to complete, which observers say could effectively kill the deal. “If EchoStar and DirecTV decide to go ahead with the hearing, DirecTV probably will ask for FCC approval of the PanAmSat deal as a separate entity from the rest of the deal,” the lawyer said. “If the FCC approves PanAmSat separately, it will make it more difficult for Charlie Ergen to wiggle out of his requirements to buy it.” But Michael Goodman, analyst at research firm The Yankee Group in Boston, said DirecTV doesn’t have to do anything to bog down the process. “It’s slow enough already,” he said. And if EchoStar decides to submit a new merger application, both the FCC and the Justice Department will have two months to review the new deal, drawing proceedings out even longer. “At this point DirecTV is not going to be in much worse shape by waiting until Jan. 21 than it would be potentially doing something to hinder the sale,” Goodman said. Not surprisingly, DirecTV spokesman Jerry Dubrowski said EchoStar and DirecTV are committed to completing the deal, even if it comes to making compromises down the road. “It’s not that we have to appear to be interested, we are interested,” he said. But several observers said DirecTV prefers to let the deal wither because it fears that any concessions EchoStar could have to make to secure regulatory approval would hamper the company’s financial future. Cablevision Systems Corp. said last week that the FCC’s resistance to the merger gives EchoStar and DirecTV a chance to revise the deal by divesting satellite assets to the Bethpage, N.Y., cable company. DirecTV likely opposes such a concession because “they know it won’t work,” said Matthew Polka, president of the American Cable Association, a Pittsburgh-based organization that represents small cable companies. The upshot, said Tom Burnett, president of New York research firm Merger Insight, is that EchoStar and DirecTV are likely to end up in court fighting over whether “material adverse changes” at DirecTV have legal bearing on the deal’s kill fee and the value of PanAmSat. Copyright �2002 TDD, LLC. All rights reserved.

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