Roiling Markets Threaten PrimeStar Deal


PrimeStar Inc.'s quest-for-high-power drama continued
last week with no resolution in sight.

The plunging price of TSAT (TCI Satellite Entertainment
Inc.) shares and the difficult market for public debt securities have prompted News Corp.
and United Video Satellite Group Inc. to renegotiate their previous $6-per-share offer for
the stakes of PrimeStar's MSO partners, several sources close to the negotiations
said last week.

The $6 offer "was there, and then it was not
there," one MSO executive involved in the process said.

One analyst close to PrimeStar said the current plan is to
leave some of the MSOs' equity in place -- possibly in the form of nonvoting
preferred stock -- after buying out the rest of their stakes.

While that would ease the financial burden on News Corp.
and UVSG, it raises the question of whether the Department of Justice would approve such
an arrangement.

"I think the tougher call now is [DOJ approval],"
the source said.

Meanwhile, PrimeStar's operating losses are rising,
and its subscriber gains are lagging behind those of its DBS competitors, while its market
value, reflected in TSAT's stock, keeps falling.

That could put pressure on News Corp. chairman Rupert
Murdoch -- who is due to get $800 million in cash as part of the $2 billion TV Guide asset
sale to UVSG -- to cut a deal soon to protect his American Sky Broadcasting Inc.

The antitrust clock started ticking again early this month,
as the DOJ moved forward with plans for its suit against the planned PrimeStar/ASkyB
merger. The trial is set for February.

There had been a two-week reprieve in the discovery process
while the two sides worked toward a possible settlement. But those two weeks have come and
gone with no word on a deal.

A PrimeStar spokesman last week said he could not comment
on the status of any deals that would reduce ownership in the company by PrimeStar's
cable partners.

"We're not at a point where we can reach a
settlement," he said.

Last Friday, TSAT's shares were trading at well below
$2 apiece, and there were signs of shareholder discontent. Message boards on
finance-related Web sites contained angry comments posted by shareholders, who were
worried that the value of their TSAT stock will be driven down to zero.

Mickey Alpert, president of Washington, D.C.-based Alpert
and Associates, said he doesn't believe that PrimeStar can afford to wait for the
market to rebound before it signs a deal that would move the company toward a high-power
direct-broadcast satellite business.

Although some TSAT shareholders have begun questioning
whether they would get more value if PrimeStar simply sold off its assets and subscriber
base, Alpert said that would represent a worse deal for PrimeStar's owners than
restructuring the company's ownership.

And there's no guarantee that there would be any
takers if PrimeStar put its subscriber base up for sale. When asked what value he would
place on PrimeStar's subscriber base, DirecTv Inc. president Eddy Hartenstein said he
had not even considered it.

"I'm not sure what that does for anyone," he
said, given PrimeStar's high churn rate and the incompatibility of its hardware with
DirecTv's DBS platform.