Sunday, February 15, 2009

Ergen Could Be Serious About Sirius

Ergen Could Be Serious About Sirius

No one is a bigger tightwad than Charlie Ergen. The 55-year-old Ergen, a poker-playing former financial analyst for Frito-Lay (PEP), 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 (DISH) 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 (SIRI). Wall Street sources say Ergen bought the bonds on the cheap as a possible precursor to a takeover. Talk about a skinflint entre 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 (DTV), has fallen hard from its orbit. Dish recently lost its alliance with AT&T (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 (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 (SATS), which was split off from Dish to develop Slingbox and other technologies. EchoStar has introduced the service for Apple (AAPL) iPhones and Research In Motion (RIMM) BlackBerrys.

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