EchoStar grabs Sling Media

The Englewood, Colo., company issued a statement Monday night, Sept. 24, saying it has agreed to buy venture capital-backed Sling Media, in which it already has a stake, for $380 million in cash and assumed options. Sling Media of Foster City, Calif., produces the Slingbox system, which enables a user to watch and control a home TV via a portable device such as a laptop computer, personal digital assistant or Windows cellular phone.

On Tuesday morning, EchoStar said it is considering splitting itself into two publicly traded companies in an effort to unlock value for shareholders.

The proposal calls for the company's U.S. satellite-TV business, Dish Network, to continue to operate within EchoStar while its technology and infrastructure assets would be spun off to shareholders. The deal would allow EchoStar's current shareholders to own shares in both companies.

"We believe separation of our consumer-based and wholesale businesses could unlock additional value," said EchoStar chairman and chief executive Charlie Ergen in a statement. "Each company would be able to separately pursue the strategies that best suit its respective long-term interests."

Ergen added that the spinoff would also be a boon to employees whose incentives would be tied to their respective company's performance.

EchoStar, which has a market capitalization of $18.5 billion, has asked the Internal Revenue Service to rule on whether the deal would be tax-free to shareholders.

The spunoff assets would include, among other things, EchoStar's set-top box design and manufacturing business, its international operations and assets used to provide fixed satellite services to third parties, together with satellites, uplink centers and spectrum licenses not considered core to Dish Network's subscriber business. The set-top box business shipped more than 9 million units in 2006 to Dish Network and international customers.

The spinoff is subject to certain conditions, including final approval by EchoStar's board, regulatory approval and a determination that it will qualify as a tax-free transaction for EchoStar and its shareholders. Final terms and timing of the transaction have not yet been determined.

According to its Web site, Sling Media originated in 2004, when it raised $10.5 million in series A funding from Mobius Venture Capital, DCM-Doll Capital Management, Hearst Corp. and other investors. In January 2006, Sling Media raised an additional $46.6 million in a series B funding from such investors as Allen & Co. LLC, EchoStar, Goldman, Sachs & Co. and Liberty Media Corp.

"This combination paves the way for the development of a host of new innovative products and services for our subscribers, new digital media consumers and strategic partners," Ergen said.

Sling Media chief executive Blake Krikorian said he was "psyched" about the combination, which would help Sling Media expand its open multiplatform product offerings globally.

Besides the Slingbox, the company has developed Clip+Sling, which enables consumers to "socialize around TV" by clipping and sharing "limited segments of their favorite television programming."

David Chao, co-founder and general partner of DCM, Sling's largest VC shareholder, said he is thrilled for the company and the investors. "Return on investment is another validation of Sling's leadership. With DCM's Series A investment expected to earn a return of about 10 times, Sling is delivering one of the most successful post-bubble exits among consumer device plays in digital media. As Sling's largest VC shareholder, we are very pleased with the company's accomplishments."

Sling Media distributes its product line in more than 5,000 retail stores in 11 countries.

The companies expect to close the deal in the fourth quarter of 2007.