Satellite television operator EchoStar Communications Corp said it may spin off its technology assets and announced plans to buy Sling Media, the maker of a device that relays TV programs to laptops and cell phones.
EchoStar shares rose as much as 9 percent in early trading, raising the possibility that the move could position either the technology unit or its pay-TV business Dish Network for an eventual sale.
It is likely that the potential spin-off/restructuring will trigger renewed speculation about possible M&A transactions, Sanford C. Bernstein analyst Craig Moffett said in a note to clients, though he questioned whether a spinoff was necessary to selling either of EchoStar's businesses.
EchoStar said on Tuesday it asked the U.S. Internal Revenue Service whether it can split its technology and infrastructure properties into a new publicly-traded entity on a tax free basis to the company and shareholders.
Under the plan, EchoStar's consumer pay-TV business would continue to operate on its own as the Dish Network. Shareholders would have separate pro rata ownership interests in each company.
Each company would be able to separately pursue the strategies that best suit its respective long-term interests, said EchoStar Chairman and Chief Executive Charlie Ergen in a statement. He added that a spin-off would allow the two companies to build more precise performance-based incentives for employees, as well as financing and expansion plans.
The Dish Network operations accounted for 98 percent of the company's overall revenue in the second quarter.
EchoStar, which competes with rival satellite provider DirecTV and U.S. cable operators, said late on Monday it would buy Sling Media in a deal that values the privately-held company at $380 million.
Sling Media is known for its Slingbox device that connects cable and satellite TV set-top boxes to the Internet, allowing a viewer to call up programs out of the home on mobile devices that have Web access.
EchoStar had previously made an investment in the company, but Sling officials would not disclose financial details.
Bernstein's Moffett said the Sling Media acquisition could help EchoStar differentiate its service from rival DirecTV and cable operators by offering subscribers television on the go.
But that strategy carries its own risks since Sling relies on high-speed Internet connections for its service to work properly, Moffett noted.
Increasingly, those broadband connections are likely to belong to cable operators, or, in parts of the country, to (phone companies) offering their own video services, he wrote in a research note to clients.
Sling Media would be incorporated into EchoStar's technology and infrastructure segment, but remain a wholly owned subsidiary using its brand name.
EchoStar's asset spinoff would include its set-top box design and manufacturing business, its international operations and assets used to provide fixed satellite services to third parties. Ergen would continue to serve as Chairman and CEO of both Dish Network and the spun-off company.
It will sell hardware and services to the Dish Network, as well as market to other cable and satellite companies and directly to consumers, a Sling spokesman said.
The purchase is expected to close in the fourth quarter.
Shares in EchoStar were up 7 percent, or $2.80, to $44.12 in early Nasdaq trading, after touching an intraday high of $45, its highest level since July.