WASHINGTON -- EchoStar Communication Corp.'s yearlong bid to take over satellite rival DirecTV appeared all but over Thursday as state and federal antitrust officials -- unimpressed by some last-minute concessions -- sued to block the merger.
The decision is likely to set off a series of intense legal maneuvers by the two satellite-TV rivals over $600 million in breakup fees tied to the failed merger.
The Justice Department and attorneys general for California and 22 other states determined that a combination of the nation's two satellite-TV providers would lead to higher prices, poorer service and reduced incentive for innovation. Three weeks ago, the Federal Communications Commission rejected the deal on similar grounds.
Though EchoStar and DirecTV's parent, Hughes Electronics Corp., have the legal right to press their case in court, the unusual one-two punch by the government makes it highly unlikely that the companies can salvage the $18-billion deal, analysts say. In most cases, merger partners give up after the Justice Department files suit.
"We continue to believe passionately that the merger of EchoStar and Hughes is the best chance to stop rising cable prices and to bring enhanced services to all Americans, especially those consumers living in rural America," EchoStar Chief Executive Charlie Ergen said in a statement.
"We are obviously disappointed that at this time we have not been able to convince regulatory officials to share our vision."
A statement from Hughes said the company would consult with EchoStar before determining its next move. Privately, DirecTV sources say they have no desire to fight the government in court but are obligated to go along with EchoStar until their merger agreement formally expires Jan. 21.
DirecTV Chief Executive Eddy Hartenstein said last month that he did not expect the agreement to be extended.
At Hughes' headquarters in El Segundo, many of the 1,200 employees, who feared a merger would result in large-scale layoffs, breathed a sigh of relief, sources said. Hughes is a unit of General Motors Corp.
With the collapse of the deal, analysts predict, EchoStar and DirecTV will return to being aggressive rivals, and they may well sue each other over the $600-million breakup fee that EchoStar has pledged to pay Hughes if the merger is not completed by the Jan. 21 deadline.
The contract also calls for EchoStar to purchase Hughes' stake in satellite operator PanAmSat Corp. for $2.7 billion.
