DirecTV Unifies Latin Platform

10/17/2004 8:00 PM Eastern

DirecTV Group Inc. engineered a complicated deal last week to consolidate once-troubled Latin America satellite-TV operations in exchange for $579 million in cash.

In transactions with Grupo Televisa, Globopar, Liberty Media International and News Corp., DirecTV effectively consolidated its position in Latin America, bolstering its position in Brazil, Columbia, and Chile.

Southern Skies
Changes are ahead for DirecTV in Latin America.
Source: Citigroup Smith Barney
Before: 100% stake in venture with 423,000 subscribers.
After: 72% stake in venture with 1.2 million subscribers.
Net gain: 462,000 proportionate subscribers.
Before: 100% stake in venture with 266,000 subscribers.
After: 43% stake in venture with 1.2 million subscribers.
Net gain: 253,000 proportionate subscribers.
Other Latin American Territories
Before: 100% stake in venture with 849,000 subscribers.
After: 100% stake in venture with 938,000 subscribers.
Net gain: 89,000 proportionate subscribers.

While it agreed to shut down its Mexico operations — selling its subscriber list to the dominant satellite service provider in that area, Sky Mexico — DirecTV will receive a 15% equity stake in Sky Mexico if 175,000 of its 266,000 subscribers switch to the remaining service. And after a six-month migration period, DirecTV will surrender the 15% stake for cash, and acquire News Corp.’s stake in the service and, with Televisa, Liberty Media International’s interest in the operation.

Ultimately, DirecTV will own about 43% of Sky Mexico, with Televisa owning the remaining 57%.

In Brazil, DirecTV will acquire both News Corp.’s and Liberty Media’s interests in Sky Brasil. Sky Brasil and DirecTV Brasil will merge, and DirecTV Brasil customers will be migrated to the Sky Brasil platform.

DirecTV Brasil will own 72% of the merged entity, with current Sky Brasil holder Globopar owning 28%.

In the other territories, DirecTV will acquire the News Corp., Globopar, Televisa and Liberty Media interest in Sky Multi-Country Partners, and merge Sky Multi-Country’s businesses with DirecTV in Chile and Colombia. DirecTV will own 100% of the merged entity, to be called DirecTV Pan Americana.

DirecTV will essentially gain access to a footprint of about 3.4 million subscribers.

In a conference call with analysts and reporters last week, DirecTV CEO Chase Carey said he expects that subscriber base to grow to 5 million customers in the next three to five years.

The consolidation steadies what had been a shaky past few years for DirecTV’s Latin America operations. In March 2003, DirecTV Latin America filed for Chapter 11 bankruptcy protection, emerging in February of this year.

Analysts saw the deals as positive for DirecTV. Merrill Lynch & Co. media analyst Jessica Reif Cohen wrote that DirecTV’s 5 million subscriber target “could be a low-ball estimate, suggesting considerable valuation upside.”

Carey said on the call that he believes the Latin America market, although a money-loser for DirecTV in the past, has the potential to become profitable.

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