blind_html [Fwd: Ergen Could Be Serious About Sirius]

  • From: Nimer <nimerjaber1@xxxxxxxxx>
  • To: blind_html@xxxxxxxxxxxxx
  • Date: Sat, 14 Feb 2009 10:16:43 -0700

Talk about making everything bigger. I don't like this. There goes competition, and raised prices too.

-------- Original Message --------
Subject:        Ergen Could Be Serious About Sirius
Date:   Sat, 14 Feb 2009 05:08:30 -0500
From:   Ray T. Mahorney <coffee-craver@xxxxxxxxxxxxxx>
Reply-To:       Blind-chit-chat@xxxxxxxxxxxxxxx
To:     <blind-chit-chat@xxxxxxxxxxxxxxx>

February 13, 2009, 12:01AM EST

Ergen Could Be Serious About Sirius
The CEO of EchoStar and Dish Network may need the troubled radio company
as bad as Sirius needs him: His satellite TV business is losing customers

By Ron Grover
BusinessWeek <>

No one is a bigger tightwad than Charlie Ergen. The 55-year-old Ergen, a
poker-playing former financial analyst for Frito-Lay , got his start in
satellite TV by selling one of those giant backyard dishes from the back
of a pickup. Even after he built Dish Network into the fastest-growing
satellite TV company, he insisted that even his top executives fly coach
and stay two to a hotel room when traveling. So it's no surprise that
Ergen saw opportunity in scooping up debt held by the troubled satellite
radio company Sirius XM. Wall Street sources say Ergen bought the bonds
on the cheap as a possible precursor to a takeover. Talk about a
skinflint entrée to a new, if struggling, business.

But the purchases are more than a bargain hunt. Ergen may need Sirius as
badly as the near-bankrupt radio company may need him. Dish Network,
after years of gaining on cable companies and outpacing rival DirecTV,
has fallen hard from its orbit. Dish recently lost its alliance with
AT&T, which bundled Dish's service with its phone offerings. The
partnership accounted for much of what little growth Dish has registered
in its 13.7 million subscriber base. Worse, AT&T now works with DirecTV,
leaving Dish with no large phone company to help goose sales.

In the quarter that ended Sept. 30, Dish lost 10,000 subscribers. The
company's 9% earnings increase, to $223.7 million, was mostly a result
of increasing customers' bills-not exactly a recipe for long-term
success, especially in a market where consumers are curtailing
nonessential spending.

Ergen also lost a big legal battle recently when Dish was ordered to pay
$104.6 million in damages to TiVo for violating patents on TiVo digital
video recorders. Dish is appealing the decision.

Bankruptcy Attractions

No wonder Ergen is nosing around. "He's an entrepreneur," says Sanford
C. Bernstein analyst Craig Moffett. "He is always looking for his next
business." Ergen could derive a lot of benefits from an acquisition of
Sirius XM, Moffett says. For starters, the company could use the
bankruptcy proceedings to drive down costs, including deals with
carmakers, which share profits with Sirius for pushing new subscriptions.

Sirius would join a long list of other ventures that Ergen has been
considering in order to shift focus from the slower-growing satellite TV
business. He now aims to reach consumers when they're away from home,
says Tuna Amobi, who follows Sirius and Dish for Standard & Poor's,
which like BusinessWeek is a unit of The McGraw-Hill Companies. In late
2007, Ergen paid $380 million for Slingbox, a technology that lets
people view cable or satellite service while traveling. Ergen's other
company is EchoStar, which was split off from Dish to develop Slingbox
and other technologies. EchoStar has introduced the service for Apple
iPhones and Research In Motion BlackBerrys.

Where does Sirius XM fit? It's unlikely Ergen could use Sirius' existing
satellites, which are configured for radio use, but he might be able to
make use of a satellite that Sirius expects to be delivered next year.
Dish could also market its TV service jointly with the radio service and
make use of other Sirius operations, Amobi says.

The bigger question is whether Ergen gets Sirius XM at all. Clearly,
Sirius CEO Mel Karmazin doesn't want Ergen to take control. (Wonder why?
In 2004, when Karmazin was Viacom president, Ergen yanked Viacom's MTV
and Nickelodeon from his Dish during a contract dispute, then put
Karmazin's home phone number on the screen in their place to encourage
angry viewers to call.) Karmazin is said to be seeking out Liberty Media
and its billionaire Chairman John Malone as a "white knight," according
to news reports. No doubt Karmazin is hoping that Liberty, which also
owns DirecTV, will head off Ergen. EchoStar, which is said to be
accumulating the bonds, refused to comment, as did a representative of

Another Game of Poker?

As useful as Sirius XM could be, the frugal Ergen is unlikely to throw
around big bucks to win a business he'll have to recapitalize for a sum
that could reach hundreds of millions of dollars. It's not that he
doesn't have the funds-as of Sept. 30, EchoStar had more than $970
million in cash.

"I don't see Charlie stepping into a bidding war," says one longtime
associate. In fact, maybe that's exactly what Karmazin is hoping for:
Bring in someone to put some money on the table and watch the cheapskate
take a hike.

Then again, Ergen may be engaged in just another game of poker, albeit
one with high stakes. He's already into the bidding, even if he bought
the Sirius bonds for pennies on the dollar. Malone or anyone else who
wants to buy Sirius has to settle with Ergen first, since he is the main
bondholder. Maybe Ergen simply pushes back, forcing the company into
bankruptcy by not accepting whatever Malone might want to pay for the
$175 million that comes due on Feb. 17.

But there's no denying Ergen needs Sirius badly enough to throw in a few
more bucks to win control. The old Ergen wouldn't do that, to be sure.
But times change. So, too, might the guy who started one empire on the
back of a pickup truck and now needs to find his next one.

Grover is Los Angeles bureau chief for BusinessWeek.

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