Pegasus Plunges After Hughes Ends Talks
Updated from Feb. 5
Hughes Electronics
(HS)
to
Pegasus Communications
(PGTV)
shareholders: Drop dead.
Hughes, which operates direct broadcast satellite service DirecTV, said Thursday evening that it had terminated a yearlong mediation process over a contractual dispute with Pegasus, which distributes DirecTV in certain rural areas.
Not only that, but newly installed Hughes CEO Chase Carey said in a statement that Pegasus management and shareholders were deluded about the value of their company.
Evidently, some of those shareholders believed him. Early Friday, shares in Pegasus fell $12.18, or 29%, to $29.47.
From late October to late January, shares in Pegasus zoomed from $13 to $51, based on hopes that Hughes -- newly under the control of Rupert Murdoch's
News Corporation
(NWS) - Get Report
-- would buy out Pegasus in settlement of the companies' litigation.
As Carey made explicit in his published comments, such optimism was unfounded.
Citing "fundamentally irreconcilable differences" between DirecTV and Pegasus, Carey said, "We believe that Pegasus has an unrealistic view of its contractual position and, therefore, of its resulting business prospects and fundamental valuation. With every day that passes, both Pegasus' significance to DirecTV and its value as a standalone enterprise diminish."
Though executives in negotiations gone awry traditionally limit their badmouthing, if any to, executives on the other side of the bargaining table, Carey went after Pegasus investors as well.
After explaining Hughes' understanding of Pegasus' rights to distribute DirecTV, Carey said, "in our view, the current equity and bond trading levels are fundamentally disconnected both from the company's limited rights and its financial position, as well as its potential value to DirecTV."
Continued Carey, "We believe that the only basis for these valuations is the belief that the new management of Hughes and DirecTV are impatient and will overpay in order to quickly resolve this situation. That simply isn't the case."
A Pegasus spokesman wasn't immediately available for comment.