EchoStar shares down as AT&T deal talk cools

NEW YORK (Reuters) - Shares in EchoStar Communications Corp (DISH.O: Quote, Profile, Research, Stock Buzz) fell by as much as 11 percent in opening trade on Tuesday morning as speculation cooled that AT&T Inc (T.N: Quote, Profile, Research, Stock Buzz) would make a bid for the satellite television operator.

EchoStar's shares dropped by $4.55 to $42.94 in early trade while shares in AT&T recovered 27 cents to $38.02.

A Wall Street Journal blog, posted late on Monday, claimed that no talks were ongoing between the companies, citing a source familiar with AT&T.

EchoStar, the second-largest U.S. satellite television operator, had seen its shares jump by as much as 27 percent on Monday following reports in Barron's and financial Web site TheStreet.com that AT&T was preparing a takeover bid and both companies have been in talks.

EchoStar's low share price, prior to the investor speculation, had been cited in the Barron's story as a reason for AT&T's interest in a deal as the phone company tries to build a competing video service to the cable operators.

AT&T has been investing in its own advanced video service called U-Verse to compete with cable operators, but a purchase of the 13.7 million pay-TV subscribers of EchoStar's Dish Network would accelerate that process.

Both companies already have a marketing partnership offering a package of phone, Internet access and satellite TV to subscribers in certain regions of the U.S.

"A takeout of EchoStar by AT&T is possible but not certain," said Todd Mitchell, analyst at Kaufman Bros, in a note to clients on Tuesday. "We believe the issues are price, a long history of tough negotiations and the fact that both parties have a high degree of leverage over the other," he said.

But Mitchell added that the recent developments tilt the equation toward a deal.