DirecTV to pay $938 million for Pegasus satellite TV unit

August 03, 2004|By BLOOMBERG NEWS

EL SEGUNDO, Calif. - DirecTV Group Inc., the biggest U.S. satellite-television provider, agreed yesterday to buy former marketing partner Pegasus Communications Corp.'s satellite-TV unit for $938 million to sell service directly to 8.4 million rural homes.

DirecTV will pay $875 million in cash, the El Segundo, Calif.,-based company said in a statement. Pegasus previously held exclusive rights to provide DirecTV's service in rural areas of 41 U.S. states, sharing revenue with DirecTV.

The number of subscribers to DirecTV services in rural areas has steadily declined in the past few years, and this deal will allow DirecTV to reverse that trend and increase its subscriber base in these areas, an analyst said.

"DirecTV had been hamstrung in rural America by a weak partner," said Craig Moffett, an analyst with Sanford C. Bernstein & Co. in New York. He rates DirecTV shares "market perform" and said he doesn't own the stock.

DirecTV shares rose 46 cents to $16.67 in New York Stock Exchange composite trading. Pegasus shares rose 27 cents to $20.38 in Nasdaq stock market composite trading.

As part of the purchase, DirecTV said it agreed not to collect a $63 million legal judgment from Bala Cynwyd, Pa.-based Pegasus. A U.S. court in Los Angeles had awarded the $63 million judgment in May after a jury ruled that Pegasus breached its contract by failing to reimburse DirecTV for some costs to connect new customers.

DirecTV, with more than 12.6 million U.S. subscribers, competes with Englewood, Colo.-based EchoStar Communications Corp. for rural satellite customers. EchoStar's Dish Network has 10 million customers.

Pegasus said it serves 1.08 million homes. The company said in March that it had 1.16 million customers at the end of last year, after losing 12 percent of its subscribers in 2003.

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