Hughes buys satellite firm for $1.3 billion
In a move to simplify its DirecTV service, Hughes Electronics agrees to buy United States Satellite Broadcasting for $1.3 billion in stock and cash.
Under the terms of the deal, USSB shareholders can choose to receive cash or 0.3775 shares of Hughes's stock for each outstanding USSB share.
Hughes, a business unit of General Motors, plans to expand DirecTV's programming to 210 channels from 185 channels.
DirecTV and USSB have worked together since DirecTV sold USSB capacity on its first satellite for $100 million in 1991. The two services both work on DirecTV's 18-inch dishes, but consumers are often confused by the two separate but similar offerings.
USSB, which primarily offers multichannel premium movie services such as HBO and Showtime, has 2.1 million customers--yet most of them also subscribe to DirecTV. DirecTV expects to gain about 200,000 new subscribers as a result of the deal.
With more than 4.3 million subscribers, DirecTV, which launched in 1994, already is the largest direct broadcast satellite (DBS) service provider in the United States.
"This simplifies the offer for us and consumers, which will strengthen our position against cable," said DirecTV spokesman Bob Marsocci.
Analysts said the deal has a number of advantages for Hughes.
"It's now going to be a much simpler selling proposition," said Steve Blum, president of Tellus Venture Associates, a satellite communications consulting firm. "This makes it simpler for the consumer, for DirecTV, and from an operational and financial standpoint, there's a tremendous cost savings."
Marsocci said DirecTV expects to save as much as $180 million per year by reducing the duplicative billing and customer service efforts of the newly merged company.
The deal, which is subject to shareholder and regulatory approval, could increase DirecTV's revenue by $800 million to $900 million during the first year, Marsocci said. The sale is expected to close in three to six months.
The deal follows a similar move by competitor EchoStar Communications. Last month EchoStar, which operates the Dish Network, bought the satellite assets of News Corporation and MCI WorldCom.
PrimeStar also operates a DBS consumer television system. The company has roughly 2.2 million subscribers.
The DBS market has cut into cable television's customer base in recent years, adding about 2 million new subscribers annually, Blum said.
Direct-to-home video satellite services now reach more than 10 percent of TV households, according to Andy Paul, senior vice president at Satellite Broadcasting and Communications Association, a DBS trade group.
The deal, based on Hughes' Friday closing share price of $38.25, values its rival USSB's stock at $14.44 per share.
USSB shares closed more than 29 percent higher today at 12.4375, a new 52-week high. Hughes shares finished more than 4 percent lower at 36.6875. Shares have fluctuated between 57.875 and 30.375 in the past 52 weeks.