Pegasus Communications stock plunged more than 27% on Friday, a day after a Los Angeles federal judge dismissed all pending lawsuits related to a contract dispute between Pegasus and DirecTV.
Pegasus is a distributor of DirecTV service in certain rural areas under an agreement with the National Rural Telecommunications Cooperative, which was at one time part of the litigation. At issue was how long NRTC’s — and by extension, Pegasus’ — right to exclusively resell DirecTV service in those rural areas would last.
NRTC, which helped pay for DirecTV’s original satellite, reached a settlement with the nation’s No. 1 satcaster last year stipulating that their contract would end when the first DirecTV satellite burns out or on June 30, 2008, whichever comes later.
In her ruling, federal district court Judge Lourdes Baird wrote that Pegasus no longer had standing to sue DirecTV since NRTC had settled with DirecTV and Pegasus had its contract with NRTC. Likewise, she wrote, DirecTV’s countersuit was a moot issue.
Thomas Eagan, an analyst with Oppenheimer & Co., said in a note to clients that the ruling “does not help Pegasus” and “the risk/reward profile is heavily skewed against the (Pegasus) shareholder.” Oppenheimer maintains a “sell” recommendation on Pegasus stock and predicts the price will drop to $12 per share within the next year. The stock closed Friday at $14.44. It traded above $40 per share in March.
The case is separate from a $51.5 million jury verdict awarded last month to DirecTV in a trial over a marketing agreement with Pegasus. DirecTV has asked the judge to award an additional $13 million in interest.