News Corp swallows Pegasus Satellite
In a vertical buyout, US satellite TV provider DirecTV Group has bought out Pegasus Satellite group, a division of Pegasus Communications in an approximately $900 million deal. DirecTV is a subsidiary of News Corporation, the owner of Fox TV and other media assets.
Pegasus Satellite had already filed for bankruptcy, thanks to DirecTV, the company was a supplier of DirecTV's satellite TV services to rural customers, as an affiliate of the National Rural Telecommunications Cooperative. DirecTV had terminated that agreement in June, and Pegasus sued the company unsuccessfully.
Parent company Pegasus Communications also owns eight local TV stations, mostly in rural areas such as Auburn, Maine and Waycross, Georgia. Without the satellite assets, the company will be a shadow of its former self.
With this purchase, DirecTV is getting rid of a middleman serving about one million of its subscribers--a case of disintermediation that saves DirecTV the fees that Pegasus has been slicing off DirecTV's subscription fees. Despite an overall growth in satellite TV, an area where DirecTV is the dominant player, Pegasus had been slowly losing customers over the last year.
But News Corp. isn't just acquiring. It's reshuffling its hand. When it bought Hughes Electronics last year from General Motors to get DirecTV, it ended up with other Hughes assets it didn't want to keep. The company is now in the process of selling PanAmSat, a division that owns and operates around 25 communications satellites, whose use it rents out to telecom and television companies. It is near agreement on a $4 billion + sale of company to a group of equity investors including Kohlberg Kravis Roberts and the Carlyle Group, Recent mechanical problems with a key satellite may bring down the price, however.
Another Hughes division, Hughes Network Services (HNS) is also on the block. This company is involved in providing broadband services both through cables and through satellite linkups to companies and individuals. The company has already sold one of the pieces, Hughes Software. Other pieces may soon go also.
This is a typical pattern. News Corp. Bought Hughes Electronics for DirecTV, a media asset. It is now buying Pegasus to strengthen its hold on that market. The non-media, communications-related pieces it has no interest in holding and managing. The equity buyers are sure they can restructure PanAmSat then find a buyer who is building a bigger communications oligopoly, and at a profit.
