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DirecTV Wins Right to Birds

10/26/2003 7:00 PM Eastern

EchoStar's late-inning attempt to wrangle four satellites in various stages of construction from its rival DirecTV Inc. was thwarted by a U.S. Bankruptcy Court judge last week, after the court upheld an earlier contract to sell the birds to DirecTV.

EchoStar had offered $200 million for the satellites — DirecTV 7S, which is nearing completion and two other birds (DirecTV 8 and DirecTV 9S) that are in various stages of construction. DirecTV parent Hughes Electronics Corp. had already paid $140 million for the DirecTV 7S satellite, and agreed to sweeten the deal by paying another $25 million.

U.S. Bankruptcy Court for the Southern District of New York judge Robert Drain approved the DirecTV contracts and one other to build a satellite for PanAmSat Corp.

Ergen Disappointed

According to Loral, the PanAmSat, DirecTV 8 and DirecTV 9S contracts are valued at about $320 million.

"We're disappointed in the judge's ruling as we believe we had a superior bid for the satellite assets," EchoStar chairman Charles Ergen said in a statement through a company spokesman. "We have had a long, productive relationship with Loral and we look forward to continuing to work with them as they emerge from bankruptcy."

EchoStar's bid for the DirecTV 7S satellite was seen by many as a ploy to delay its competitors' plans.

DirecTV had planned to use the satellite to offer local channels in more of its markets.

In a research report, Lehman Bros. satellite analyst Vijay Jayant wrote that the EchoStar bid's underlying intent was to delay DirecTV's local-market expansion, adding: "From the outset we had been unable to find a strategic rationale for EchoStar's acquisition of the North American assets."

EchoStar spokesman Steve Caulk said no comment would be made regarding the purpose for making the bid nor the strategy had EchoStar acquired the assets.

Some published reports said EchoStar lawyers were investigating options to appeal the judge's ruling, but a source close to the No. 2 DBS service provider said that was not the case. "EchoStar's offer is totally off the table," the source said.

It also appears EchoStar's attempt to trump Intelsat Ltd.'s purchase of Loral's existing North American satellite fleet has been scrapped.

Last month EchoStar offered $1.85 billion for all of Loral, including its satellites and its manufacturing operations.

Later, after Loral rejected that bid, EchoStar made a $1-billion offer for the satellites alone.

Intelsat's $1.2-billion bid for the birds prevailed in the end.

The sale must still be approved by the U.S. Bankruptcy Court for the Southern District of New York. But in allowing the satellite sale to DirecTV, Judge Drain also approved Loral's reorganization plan, which appeared to pave the way for the Intelsat sale.

Judge Drain was still hearing testimony on the Intelsat agreement last Thursday at press time.

No. 4 Is Out

The Intelsat agreement provided for the sale of the in-orbit Telstars 4, 5, 6, 7 and 13, as well as Telstar 8, which is scheduled to be launched in the first half of next year. After that announcement, Telstar 4 failed and was deemed a total loss but it is fully insured.

Loral intends to reorganize around its remaining fleet of five satellites and its satellite manufacturing operations.

Intelsat essentially won the bidding war by adding another $100 million to its original $1.1 billion bid.

On Oct. 20, Loral declared Intelsat the winning bidder, saying the sale would allow the troubled company to move forward with its strategy to exit bankruptcy.

While the deal still needs to be approved by the bankruptcy court and federal regulators, it isn't expected to run into any snags.

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