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DirecTV Will Receive $200 Million Less for Stake in PanAmSat

August 13, 2004|From Bloomberg News

DirecTV Group Inc. said Thursday that, in the wake of a satellite propulsion system failure, Kohlberg Kravis Roberts & Co. and two other buyout firms would pay it $200 million less than the amount originally agreed on for an 80.4% stake in PanAmSat Corp.

El Segundo-based DirecTV, the nation's biggest satellite television service, will get a total of $2.6 billion for its stake in PanAmSat from KKR, Carlyle Group and Providence Equity Partners. The agreement doesn't affect the $23.50 per share to be paid to the holders of the remaining 19.6% of PanAmSat shares, it said.

"DirecTV got what they wanted -- cash to grow their business," said Steve Mather, an analyst with Los Angeles-based Sanders Morris Harris.

"KKR found that they were at the right place at the right time," he added. "Their risks are somewhat minimized, considering the cash flow of the business."

In addition to resolving an issue that could have derailed the transaction, Wilton, Conn.-based PanAmSat said it had obtained Federal Communications Commission approval and expected shareholders' approval at an annual meeting today. It expects to complete the deal by next Friday.

DirecTV shares fell 1 cent to $15.90 in Nasdaq trading. PanAmSat shares rose 16 cents to $23.45, also on Nasdaq.

PanAmSat last week said the three buyout firms led by New York-based KKR, the world's biggest takeover partnership, were reviewing their $3.5-billion purchase agreement after the propulsion system failed on one of its 24 satellites. The deal, announced in April, allowed the buyers to walk away if the satellite failed, PanAmSat said.

Replacing the satellite will cost less than $200 million and accelerate capital spending in the next three years, PanAmSat said at the time.

DirecTV agreed to sell the company to the buyout firms to raise cash to invest in its main business. DirecTV is 34% owned by Fox Entertainment Group, which is approximately 82% owned by News Corp.

"This transaction continues to be a good value for our shareholders and enables us to take one more step toward our goal of focusing resources and management time on our core DirecTV business," said DirecTV Chief Executive Chase Carey.

Chris Ullman, a spokesman for Washington-based Carlyle, declined to comment. KKR spokesman David Lilly also declined to comment, as did Elizabeth Hanahan, a Providence Equity spokeswoman.

Insurance proceeds will partially offset the replacement cost of the Galaxy 10R satellite, a Boeing Co. 601 HP model, PanAmSat said last week. The broken satellite was supposed to operate for seven more years.

KKR has raised about $25 billion in private equity funds and invested more than $18 billion of equity in 110 transactions. Carlyle has raised about $18 billion, and Providence, with $5 billion in assets, is raising a new $4.5-billion fund.

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