PrimeStar Completes First Stage of Roll-Up


PrimeStar Inc. emerged last Wednesday as a private,national company, following its restructuring from a partnership.

As part two of the roll-up process, the company plans to gopublic through a merger with publicly traded TCI Satellite Entertainment Inc. (TSAT), whenand if it receives government approval to merge the satellite assets from News Corp. intoits operations.

The former PrimeStar Partners L.P. had talked about rollingup the company for nearly a year, with several false starts. Dan O'Brien, presidentand chief operating officer of PrimeStar Inc., quipped during a conference call lastWednesday, "While this is April 1, this is not a joke."

O'Brien said the company's new national structurewill allow PrimeStar to compete more aggressively by taking advantage of economies ofscale and a more cohesive management team.

Approximate equity ownership interests in the new PrimeStarInc. are: TSAT (37 percent); Time Warner Entertainment and partner Advance/Newhouse (30percent); MediaOne (10 percent); Comcast Corp. (10 percent); Cox Communications Inc. (9percent); and GE American Communications (4 percent).

As part of the roll-up, each of the partners will receive$1,100 in cash and equity for each PrimeStar subscriber that it brought to the company.PrimeStar has concluded raising interim funding that will pay for the roll-up. In the nexttwo weeks, O'Brien said, the company will go out on a road tour to raise $500 millionto $750 million in high-yield debt. It will raise the funds with the help of MerrillLynch, Morgan Stanley and Donaldson, Lufkin and Jenrette.

The funds will go to pay back the short-term debt on theinterim financing, which was used to make cash payments of $480 million to the partners,and also to have capital on hand to help grow the business and to acquire new subscribers.

PrimeStar didn't miss a beat in its move to beef upits newly consolidated subscriber base. Last Saturday, the company began a joint promotionwith RadioShack called, "The Best Offer from Here to the Moon."

Later this month, RadioShack is expected to test-marketPrimeStar's new, as-yet-unnamed high-power service from a direct-broadcast satelliteat 119 degrees west longitude. PrimeStar has access to 11 transponders at 119, and itplans to offer a 120-channel service, with monthly programming fees starting at $19.95.

The hardware, which includes PrimeStar's first 18-inchdish, will be sold to consumers, rather than leased. Prices will start at $199, and allsystems will include a dual-LNB (low-noise-block downconverter) that allowssecond-receiver hookups.

O'Brien said PrimeStar will initially test the119-degree, high-power service in about 550 RadioShack stores in a few regional markets,including Dallas and Charlotte, N.C.

"We're waiting to go national until we know theoutcome of the decision at 110 degrees," he explained.

There is wide speculation that PrimeStar will be asked togive up access to its 11 transponders at 119 if it has any hope of winning governmentapproval for an asset transfer from MCI Communications Corp. and News Corp. of 28 DBStransponders at 110 degrees.

Both the Department of Justice and the FederalCommunications Commission must sign off on the transaction. O'Brien said last weekthat PrimeStar has not yet been approached by the DOJ to enter into negotiations for aconsent decree that would spell out the conditions under which approval for 110 might goforward.

If the government does not initiate that next step,O'Brien said, "we will shortly," adding that PrimeStar has been harmed inthe marketplace by the delays in government decision-making. O'Brien now expects tohear an outcome in late May or June.

PrimeStar signed up 43,000 new subscribers in March,O'Brien said.

Time Warner Inc. last week announced that PrimeStar assumed$240 million in debt formerly held by TWE as part of the roll-up.