No Deal for Pegasus

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Share values in Pegasus Communications Corp. plunged Friday, one day after DirecTV Inc. chairman Chase Carey quashed any hopes of a deal to buy the DirecTV reseller.

DirecTV broke off mediation discussions with Pegasus concerning the latter’s suit regarding its rights to resell DirecTV service. Pegasus sued the DBS provider in 1999, claiming that DirecTV was attempting to accelerate the termination of those rights, set to expire in 2008.

DirecTV also has a pending $60 million lawsuit against Pegasus for breach of contract. Court-ordered mediation talks began in January 2003.

The decision to terminate those discussions came after a meeting with Pegasus founder and chairman Marshall Pagon in New York Thursday

"We believe Pegasus has an unrealistic view of its contractual position and, therefore, of its resulting business prospects and fundamental valuation," Carey said in a prepared statement. "With every day that passes, both Pegasus’ significance to DirecTV and its value as a stand-alone enterprise diminish."

Carey nixed a Pegasus buyout. "Although we would like to market our services across our entire national footprint, DirecTV has demonstrated an ability to aggressively grow our subscriber base without and, quite frankly, despite Pegasus," he said.

In a prepared statement, Pagon said the meeting with Carey in New York was not part of the mediation process.

He added that after the 90-minute meeting, which focused on general business discussions, he received a cellular-phone call from Carey stating that DirecTV was terminating the mediation process.

Pagon said the DirecTV press release "bears no relationship whatsoever to the matters discussed by Mr. Carey and me this morning [Feb. 5]. I can only conclude that DirecTV is seeking to intentionally damage the value of our equity and debt securities and, thereby, to interfere with the successful completion of our recently announced financing."

He added, "Indeed, it would appear from their press release that DirecTV’s larger purpose is to seek to acquire our DirecTV business at a substantial discount to the value that our bondholders and preferred equity holders are legally entitled to."

On Feb. 4, Pegasus announced a $100 million bond deal that would finance an earlier tender offer for bonds valued at the same amount. Pegasus shareholders began selling -- in early trading Friday, more than 1 million shares traded hands.

For more on Pegasus, please see Mike Farrell’s story on page 3 of Monday’s edition of Multichannel News.