In 2007, Echostar Communications Corp. (the Parent) decided to spin off some of its satellite assets to Echostar Corp. and change its name to DISH Network Corp (DISH).
Retained by Coblentz, Patch, Duffy & Bass
In 2007, Echostar Communications Corp. (the Parent) decided to spin off some of its satellite assets to Echostar Corp. and change its name to DISH Network Corp (DISH). Further, in 2009, DISH paid a cash dividend. In a contract dispute with the Parent predating the spin-off, the plaintiffs claimed that Echostar Corp. should be liable under a doctrine of successor liability. The plaintiffs’ expert opined that the spin-off and the dividend payment were a “conspiracy to defraud Parent’s creditors.”
Defense counsel retained Cornerstone Research and a law professor to evaluate these expert opinions. Our expert analyzed factors that directors should consider in making a spin-off decision. He concluded that the doctrine of successor liability does not apply where the market value of the remaining assets are clearly sufficient to cover the Parent’s liabilities.
Our expert further explained the business reasons that companies have for spin-offs. He conducted an event study and showed that the spin-off created value for the Parent’s shareholders, and that the Parent’s bond prices were not consistent with the allegation that the Parent’s creditors were harmed. The Parent’s bond ratings and opinions of security analysts further supported this conclusion.
He also explained economic factors that a reasonable board should consider in evaluating a dividend payment decision. He showed that the response of DISH bond prices to the dividend announcement and payment were not consistent with the allegation of harm to creditors. Shortly after the filing of our expert’s report, the court dismissed claims of successor liability and conspiracy.