EchoStar Offers to Top DirecTV’s Bid in Tussle for Primestar Assets

Satellite television leader DirecTV could face a bidding war for satellite assets it offered to buy last month from Primestar Inc.

El Segundo-based DirecTV’s chief rival, EchoStar Communications Corp., confirmed Friday that it had sent a letter to the Primestar board offering to buy its Tempo satellite assets for $600 million, $100 million more than DirecTV offered.

Sources said DirecTV could be forced to pay more for the Tempo satellite assets, which include key orbital rights it needs to expand its services and stay competitive with EchoStar.

However, sources closes to Primestar said it is unlikely that EchoStar will prevail, noting that its bid, which is highly conditional, is worth much less than $600 million.

Federal regulators have approved the sale to DirecTV, and EchoStar lost out to DirecTV in a formal auction for the Tempo assets last month.

Sources speculated that the EchoStar bid was aimed to disrupt or delay DirecTV’s acquisition.

While DirecTV ranks No. 1 in subscribers, EchoStar will be No. 1 in satellite capacity after its pending acquisition of ASkyB, a joint venture of MCI/WorldCom and News Corp.

DirecTV agreed to buy the satellite assets as part of a two-part, $1.83-billion transaction with Primestar that would also give it control of 2.3 million subscribers. DirecTV already has more than 4.5 million subscribers, compared with about 2 million for EchoStar.

Neither DirecTV nor Primestar could be reached for comment.

The competition between EchoStar and DirecTV has intensified as the satellite television industry has consolidated in recent months through a series of proposed acquisitions that will reduce the five companies now in the business to two.

In fact, EchoStar is offering incentives to lure away Primestar customers before DirecTV gets them.

Further complicating DirecTV’s purchase of Primestar assets are Primestar bondholders, which must approve the deal but object to their take in the transaction. Under DirecTV’s proposed purchase, bondholders will be paid only 67 cents for every $1 in bonds they hold.

Bondholders say they are being shortchanged because the cable operators that control Primestar are giving themselves favorable terms in the deal. Sources say bondholders might agree to go along with the DirecTV purchase quickly if they are given a better cut of the proceeds.

Primestar is controlled by TCI Satellite Entertainment Inc., Time Warner Inc., Comcast Corp., MediaOne Group Inc., Cox Communications Inc. and closely held Newhouse Broadcasting Corp.

Primestar was forced to sell because of a cash crunch brought on by high customer turnover and rising costs and losses.

DirecTV, a unit of Hughes Electronics, plans to use the Primestar satellite capacity for new Internet services and additional channels.

Class A shares of TCI Satellite, which owns 38% of Primestar, rose 16 cents, or 24%, to close at 81 cents in Nasdaq trading, fueled by speculation about a pending EchoStar offer. Hughes’ shares fell 31 cents to close at $47.19 on the New York Stock Exchange, while EchoStar shares rose 75 cents to close at $49 on Nasdaq.