PrimeStar Roll-Up, News Corp. Deal Completed

The following was released by PrimeStar Partners today:

PRIMESTAR Partners, the nation's second largest provider of direct broadcast satellite (DBS) video services, today announced the reorganization of its ownership structure from a partnership into a new corporation called PRIMESTAR, Inc. that will include U.S. satellite assets from News Corp./MCI.

The new company will be formed from the partnership interests and the 1.8 million DBS subscribers of its partners -- TCI Satellite Entertainment, Inc. (TSAT) (NASDAQ: TSATA/TSATB), Time Warner/Newhouse, Cox Communications, Inc., Comcast Corporation, MediaOne (the broadband services arm of US WEST Media Group), and GE American Communications, Inc. (GE Americom), a subsidiary of General Electric Company.

In addition, satellite network assets presently controlled by News Corp. and its partner MCI Communications Corporation will be purchased by PRIMESTAR, Inc. in exchange for non-voting convertible securities. The satellite assets involved will enable PRIMESTAR to compete in the high power, small dish business, which is a high growth segment of the Direct Broadcast Satellite (DBS) marketplace.

The PRIMESTAR Partners have signed a binding agreement committing to the restructuring. In addition, PRIMESTAR Partners and News Corp./MCI have signed a binding asset acquisition agreement with regard to the sale of the News Corp./MCI assets. The transactions are subject to regulatory approvals and approval by the stockholders of TSAT.

James L. Gray, PRIMESTAR Partners chairman and CEO, will be chairman and chief executive officer of the new PRIMESTAR, Inc. until transition to the new company is completed. Daniel J. O' Brien, now president of Time Warner Satellite Services, Inc., will become president and chief operating officer of the new company.

Mr. Gray said, "PRIMESTAR is finally obtaining the technological capabilities and ownership structure necessary to compete in the high power DBS business.

"As a public company, PRIMESTAR, Inc. will be answerable to individual, institutional and diverse corporate stockholders. Consequently, we will compete vigorously in the broadest possible market place. This will pit us against all multi-channel television providers, including the other DBS providers and cable operators."

Mr. Gray added, "From a consumer point of view, subscribers will be guaranteed nationwide competitive choices in services, pricing and programming, with greater ease of access. Finally, PRIMESTAR, Inc. will have increased access to capital markets to finance its exciting growth prospects."

Mr. O'Brien focused on the marketing, sales and service capabilities of the new company: "As PRIMESTAR, Inc., the current distributor structure will be replaced by an agency relationship, facilitating the new company's implementation of its national sales strategy with national programming, packages and pricing. It will also enhance the company's expansion into more retail distribution channels."

Mr. O'Brien continued, "As successful as PRIMESTAR is today, our new structure will provide the increased agility required in a rapidly changing marketplace. The new PRIMESTAR will combine a group of successful yet disparate local business units into a cohesive national company."

He added, "With the new satellite assets contributed by News Corp./MCI, we will offer an attractive, competitive alternative in the high power satellite market. Until now, most of our subscribers have been in rural areas. Now we can compete vigorously in suburban and urban markets."

40% Market Share For New PrimeStar

The top executive for the new PrimeStar promised his service will work for and eventually corner 40 percent of the DBS market in the United States.

And with new partner News Corp., a roll-up of current operations, the prime orbital location at 110 degrees and new high-power satellites, CEO Jim Gray said PrimeStar will provide a compelling offer for satellite subscribers.

"This is nothing but good news for consumers," Gray said during a news conference announcing PrimeStar's roll-up and high-power plans.

The satellite service now has a 30 percent market share with 1.88 million subscribers, according to SkyREPORT research.

All of PrimeStar's partners have signed a binding agreement committing to the restructuring. Those same partners and News Corp. and MCI Communications also signed a binding asset acquisition agreement with regard to the sale of American Sky Broadcasting assets, which include two satellites and the 110-degree orbital location.

The transactions are subject to regulatory approvals and approval by the stockholders of TCI Satellite Entertainment, a PrimeStar partner.

Gray said more definitive agreements should be signed in 30 days. He said the entire transaction, along with obtaining regulatory approvals, should be completed late in the year.

"Our feeling is we should be able to get the approvals, hopefully in a reasonable period of time," he said.

PrimeStar carries News Corp.'s regional sports channels from Fox and the newly-acquired Family Channel. Under the roll-up deal, PrimeStar agreed to take Fox News Channel and fx at market prices, Gray said. But he insisted the service isn't under pressure to carry News Corp. content.

Partners To Shed Uplink Facility, Orbital Slot

PrimeStar may have won high-power satellite assets from American Sky Broadcasting, the DBS effort from News Corp. and MCI Communications, but the deal announced Wednesday also requires the new partners to shed some of their businesses.

Under the deal, ASkyB's partners will sell their Gilbert, Ariz., satellite uplink facility to Tele-Communications Inc. for a purchase price they say represents their investment in the facility, plus related interest expense.

PrimeStar Chairman and CEO Jim Gray said the service may utilize the facility on a contract basis, but added the service has other options available. "It was our view that we simply didn't need that facility inside the transaction," he said.

Primestar and TCI Satellite's Tempo unit also may dispose of rights to operate 11 channels at the 119 orbital slot, according to Satellite Journal International. TCI Satellite launched a high-power satellite into that location in March to support its Cable Plus business expected to debut at the end of the year.

PrimeStar is looking at whether cable operators will be interested in Cable Plus, said Dan O'Brien, PrimeStar's president and chief operating officer. The business, a satellite/cable hybrid, "has a lot of opportunities," he said, but added the service will is assessing whether it will work.

Current TSAT shareholders will retain about 37 percent ownership of PrimeStar, while Time Warner Satellite Services/Newhouse will own about 30 percent. Comcast and US West-backed MediaOne will hold about 10 percent, Cox about 9 percent, and GE Americom approximately 4 percent.

ASkyB partners, in return for its contribution of assets, will receive non-voting convertible securities valued at $1.1 billion.

Existing TSAT shareholders will be able to exchange current stock for shares in the new PrimeStar on a one-to-one basis. For other contributing partners, about 132 million new shares of stock are expected be issued to meet the terms of the agreement, combined with 67 million TSAT shares currently outstanding.

Gray will stay on as chairman and CE0 until transition to the new company has been completed. An executive search will begin immediately for a new CEO, the company said. O'Brien, current President of Time Warner Satellite Services, was named president and COO.

John Goddard, former CEO of Viacom Cable and a member of TSAT's board of directors, will lead a transition committee.

DBS Leaders React To PrimeStar Roll-Up

Home satellite leaders reacted to news of the PrimeStar roll-up with mixed feelings, some suggesting the new consortium of programmers and operators should heighten cross-ownership concerns while others saying the deal was a way out for News Corp.'s Rupert Murdoch.

The deal announced Wednesday, which helped Murdoch make peace with cable television operators angered by past News Corp.'s attacks, "shows the power of the cable cartel," according to EchoStar CEO Charlie Ergen.

Ergen, speaking at the Global DBS Summit in Denver, also questioned whether those companies involved in the restructured PrimeStar, which now consists of both operators and content providers, will play fair.

"It's clearly got some cross-ownership problems in terms of broadcasters, cable companies, DBS providers and content providers all in the same consortium," he said. "I think it brings up a lot of program access questions.

"At the end of the day it's not going to be in the public interest. This is not a good deal for consumers."

News Corp. attempted to form a home satellite partnership with EchoStar earlier in the year that targeted poor cable TV service, but the alliance fell apart. Now, both companies are suing each other over the collapsed "Sky" effort.

According to Ergen, Murdoch "gave up everything he was talking about" prior to aligning with PrimeStar.

Stan. E. Hubbard, president of U.S. Satellite Broadcasting, agreed, saying, "I think one competitor is leaving the business."

Bill Casamo, senior vice president of sales and marketing for DirecTV, said the PrimeStar deal "is a situation of the fox not being in charge of the hen house."

Casamo also suggested the switch from the present medium-power service to the high-power offering, which will be delivered by News Corp. satellites once they launch into the prime 110-degree orbital location, won't be easy for PrimeStar.

PrimeStar Announcement Makes Wall Street Waves

Once the PrimeStar roll-up is complete, the satellite service will become a publicly traded company. That is expected to occur at the end of the year, depending on regulatory approvals and whether the deal struck by the partners doesn't fall apart.

In the meantime, stock in some of the companies impacted by the PrimeStar restructuring made moves Wednesday. They are as follows:

PrimeStar Partners: Time Warner rose 75 cents to $50.38, Cox Communications rose 25 cents to $25.25, U S West Media Group fell 37 cents to $21.75, and General Electric rose 37.5 cents to $62.625...all stocks on the New York Stock Exchange. As for NASDAQ stocks, Comcast fell 3/8 to $22.63, Tele-Communications was slightly changed at $16.94, and TCI Satellite jumped 7/8 to $10.38

New Partners:News Corp. gained 25 cents to $18. MCI stock fell 94 cents to $40.50.

Competitors:EchoStar Communications fell more than a point to $15, U.S. Satellite Broadcasting fell 40 cents to $9.12, while DirecTV parent Hughes Electronics gained more than a point to $57.12.

The Other Big News: News Corp. Gets Family

News Corp.'s alignment with PrimeStar wasn't the only move the media giant made Wednesday.

Rupert Murdoch's machine purchased International Family Entertainment, which owns The Family Channel and other assets. News Corp. plans to use the newly-acquired asset to launch Fox Kids Worldwide, the company's children's programming arm.

News Corp. will pay $35 a share in cash for International Family Entertainment. Founder and evangelist Pat Robertson is expected to be named co-chairman of Fox Kids Worldwide, while his son, Tim Robertson, is expected to continue as president and chief executive.

Fox Kids, owned equally by News Corp. and Saban Entertainment, aims to expand International Family through News Corp.'s worldwide distribution system.