[Satellite News 06-28-11] EchoStar and Dish Network Chairman Charlie Ergen has spent the last six months leading an aggressive acquisition campaign to merge major U.S. broadband assets together to compete with billion-dollar network investments on the horizon.

   Since January, Ergen has acquired bankrupt satellite operator and valuable spectrum asset DBSD North America, video rental chain Blockbuster and satellite Internet provider Hughes Communications. His latest potential grab became a surefire reality June 28 when satellite operator TerreStar canceled its bankruptcy auction and declared Dish Network’s $1.375 billion acquisition offer the winning bid.

   Wells Fargo Analyst Marci Ryvicker said that by acquiring TerreStar and DBSD’s wide-ranging broadband spectrum portfolio, EchoStar and Dish Network would be able to build out a massive communication service offering that could drastically alter the U.S. broadband landscape.

   “While this transaction is not yet complete, the news brings [Ergen] one step closer to acquiring the building blocks he needs to pursue a business model that is likely to create long-term value and relevance,” said Ryvicker. “Combining the Terrestar spectrum — 20MHz of the 2.0GHz band — with DBSD’s contiguous 20MHz of 2.0GHz spectrum could generate an incremental asset value of up to $5 billion.”

   TerreStar Networks has long been on EchoStar’s radar ever since the company filed for Chapter 11 bankruptcy protection in October, followed by parent company TerreStar Corp. filing with the U.S. Bankruptcy Court of New York in February. The companies sought court approval to auction its assets a few months later, saying that the auction would urge its creditors to resolve differences regarding repaying the more than $1 billion of debt amassed between the two entities.

Last week, Dish Network, whose sister company EchoStar is TerreStar’s largest secured creditor, placed a $1.375 billion authorized early bid to set a minimum price for assets in the auction and ward off low bids from others. According to the bankruptcy court authorization, any competing bid for TerreStar would have to have been $55.5 million higher than Dish’s offer. Dish also agreed to pay a $27.5 million breakup fee, plus expenses of up to $3 million, if it failed to win TerreStar’s assets.

   The move comes shortly after Charlie Ergen named Joseph Clayton the new CEO and President of Dish Network — positions he formerly held. Sources told Satellite News that TerreStar plans to proceed with the Dish deal and request bankruptcy court approval for the sale.

   “We believe this has an immediate $750 million positive impact of the value of the combined spectrum that Dish now owns. Owning this asset enables someone to deliver what we think will be a huge demand for wireless data,” BTIG Analyst Walter Piecyk said in a June 28 research report. “A rival bid could conceivably come in after the deadline, although it is highly unlikely and may not be accepted by the court.

   EchoStar multi-billion acquisition spree began in February when it purchased Hughes Communications and its subsidiaries for about $2 billion. EchoStar said the acquisition created a synergy that allowed Hughes to both use EchoStar bandwidth and back out of its existing Ku-band satellite capacity leases.

   In March, Dish Network received approval from a U.S. bankruptcy court to acquire hybrid S-band service provider DBSD North America. The court’s approval followed a Dish Network announcement in February that it placed a bid for DSBD for about $1 billion. Harbinger Capital Partners and Solus Alternative Asset Management then placed bids at about $1.14 billion for the bankrupt and reorganizing S-band provider, forcing Dish to increase its bid to $1.4 billion. Dish Network will provide $325 million more to DBSD’s parent company, Ico Global Communications, and remain committed to DBSD for another $87.5 million as debtor-in-possession credit facility.

   Dish Network also bought Blockbuster on April 7 for about $320 million, with $228 million of the purchase made in cash. A U.S. bankruptcy court approved the auction the same day. Dish Network said it purchased Blockbuster primarily for its video-on-demand service to complement Dish Network’s own satellite-TV offering but will use the Blockbuster locations to cross-sell its satellite services.

   Piecyk added that EchoStar and Dish Network’s acquisition wins give EchoStar a superior spectrum market position to LightSquared given the latter’s recent GPS interference issues. “It does not appear that LightSquared is in a position to deliver a 20-by-20 LTE for many years, if ever. It’s also possible that LightSquared’s initial deployment will be limited to a 5-by-5 MHz LTE depending on how quickly Inmarsat can deliver clean spectrum.”