CIBC World Markets downgrades GM Hughes Electronics (GMH) to hold from strong buy after its merger with Echostar (DISH)
Analyst Jeffrey Wlodarczak says his downgrade is based on regulatory uncertainty. He still thinks the deal is vulnerable to a long, drawn-out regulatory process due to DirecTV and Echostar's potential dominance as the only video provider in the vast majority of the nation's 30 million rural households. The uncertainty increases the potential that GM Hughes shareholders will get left "holding the bag" if the merger is not approved by regulators in the next 9-12 months. Given the recent 35% rally of GM Hughes shares, the analyst recommends lightening positions on any strength today. He notes that Echostar's offer is an 8% premium to the current share levels.