Primestar pulls back

DBS firm postpones $400 million debt offer

Primestar Inc. finally reversed itself Friday, as observers expected, and said it was postponing indefinitely its $400 million debt offering in the wake of a major setback from the U.S. Dept. of Justice.

The Justice Dept. announced last Tuesday that it would block the $1.1 billion proposed sale of a high-powered television satellite slot to Primestar –the director broadcast satellite company owned by a cabler group sometimes called the “cable cabal.”

Primestar president Dan O’Brien’s immediate response to the Justice Dept. announcement was to insist his company would go forward with its planned offering of high-income bonds via Merrill Lynch. And though he was adamant about the offering in a conference call to investors, few were convinced.

“O’Brien’s tone showed that he was clearly shocked and dismayed,” said Curt Alexander, a satellite specialist with Media Research Group of Boston and New York, who sat in on the call.

On reversing himself Friday, O’Brien said Primestar would first seek to renegotiate with Justice the buying of key satellite assets from Rupert Murdoch’s News Corp. and MCI Communications Corp.

Justice’s logic in blocking the transfer of those assets has to do with the Primestar consortium’s controlling 60% of all cable households. This makes it, at least in the view of Justice’s top antitrust attorney, “the one group that has no interest in eroding the cable monopoly.”

O’Brien has called Justice’s logic “flawed,” claiming the decision would leave the DBS field to only two major players, DirectTV and Echostar Communications. “How can two providers be more competitive than three?” O’Brien reportedly asked throughout the conference call.

Jimmy Schaeffler, a DBS analyst at the Carmel Group in California, claimed not to be surprised by Primestar’s belated financial pull-back, especially after Canadian DBS company Star Choice withdrew a similar offering from the market just months ago.

“They sensed it was not a conducive environment,” Schaeffler said of Star Choice, “even without the setback suffered by Primestar.”

Not all is lost, theoretically, should Primestar fail to get Justice to reconsider. The company has always pitched itself as a medium-power satellite company that, depending on regulatory approval, could enter the high-powered DBS business.

According to Media Research Group’s Alexander, however, that was just a front — one now clearly exposed. “It’s just not sexy enough to command a high multiple,” the analyst said of Primestar’s fate without the cachet of being a high-powered satellite player. “Wall Street sees it as a nonstarter.”