DirecTV Merges Latin-American Operations With News Corp.

Oct 11, 2004  •  Post A Comment

DirecTV Group on Monday unveiled a $579 million plan in which the satellite operator will enter into a series of transactions designed to combine its Latin American operations with those of controlling shareholder News Corp. in the region.

The deals consolidate DirecTV’s businesses in the region, give News Corp. the opportunity to sell off nonstrategic assets and enable DirecTV to further build up its marketing efforts to Hispanics, DirecTV CEO Chase Carey said.

As part of the three-step transaction, DirecTV will control satellite systems in Brazil and in other parts of Latin America and will be a major shareholder of a satellite service in Mexico. DirecTV will pay cash in all three deals.

Mr. Carey estimated that DirecTV would spend around $100 million on new equipment for customers in the region and predicted the ventures would begin generating positive cash flow in 2005.

In Brazil, DirecTV will merge its operations with News Corp.’s Sky Brasil. In that transaction, which is subject to Brazilian government approval, DirecTV will migrate its 423,000 customers to Sky Brasil, which has 806,000 subscribers, in exchange for shares representing about 30 percent of the newly merged entity.

DirecTV will also acquire the stakes in Sky Brasil owned by News Corp. and Liberty Media International, giving DirecTV ultimately 72 percent control and principal management of the new company. The remaining 28 percent will be owned by Sky Brasil’s programming partner Globo Communicacoes e Participacoes SA.

In Mexico, DirecTV agreed to sell its list of 266,000 subscribers to Sky Mexico, which has 940,000 customers, in exchange for an adjustable note that when paid in 18 months gives DirecTV 15 percent equity in Sky Mexico. When DirecTV gets that stake, it, along with Sky Mexico co-owner Grupo Televisa, will buy Liberty Media International’s stake in the Mexican satellite operator. DirecTV will also purchase News Corp.’s stake in Sky Mexico. Following those transactions, Televisa will control 47 percent of Sky Mexico, while DirecTV will own 43 percent.

In the final transaction, DirecTV agreed to buy the interests in Sky Multi-Country Partners from Globo, Televisa and Liberty Media International, and will merge 89,000 customers in Chile and Colombia with Sky Multi-Country to create a single platform to be called PanAmerican that will be 100 controlled by DirecTV. With 938,000 customers, PanAmerican will serve customers in Argentina, Chile, Colombia, Venezuela, Puerto Rico, the Caribbean and the rest of Latin America.

All told, DirecTV will pay $496 million in cash to News Corp. and $83 million to Liberty Media International, while Televisa will pay $59 million to Liberty Media International.

The transaction comes months after DirecTV’s Latin American operations emerged from federal bankruptcy protection. DirecTV Latin America filed for bankruptcy protection in March 2003 after the company lost subscribers amid recessions, currency woes and political unrest in many of its markets.