Updated from 10 a.m.

DirecTV

(DTV)

agreed to acquire the assets of

Pegasus Communications

(PGTV)

subsidiary

Pegasus Satellite

, settling a long-running feud between the quarrelsome business partners.

Sweetening a prior offer, DirecTV will pay $875 million in cash to acquire the primary direct broadcast satellite assets of Pegasus, including rights to all DirecTV subscribers activated through Pegasus. The companies also agreed to settle ongoing litigation.

The deal ends a fractious dispute between DirecTV, which operates a leading satellite TV service, and Pegasus, which has been one of its rural distributors.

Pegasus shares nearly quadrupled last winter, reaching $51 at one point, as investors speculated that DirecTV would seek to acquire the company. But those hopes were deflated in February, when DirecTV chief Chase Carey terminated a mediation process over a contract dispute between the sides. In doing so the executive, who had been recently installed by Rupert Murdoch of DirecTV's controlling shareholder

News Corp.

(NWS) - Get Report

, called Pegasus' bargaining position and stock price "unrealistic."

Since then, Pegasus shares have continued to plunge as the sides fought over their relationship. On June 2, DirecTV moved to

dissolve a decade-old arrangement under which the National Rural Telecommunications Cooperative had the exclusive right to distribute the service in rural areas of the U.S. That decision delivered another blow to Pegasus, an NRTC affiliate which, with 1.08 million customers, was the largest DirecTV distributor under the NRTC-DirecTV agreement.

At that time, DirecTV said it would pay Pegasus $675 for each subscriber Pegasus might voluntarily transfer back to DirecTV by the end of August. Had Pegasus taken DirecTV up on that offer, it appears Pegasus would have received a maximum payment of $729 million.

Later that day, Pegasus put its Pegasus Satellite Communications and Pegasus Media subsidiaries under Chapter 11 protection. The move came as Pegasus fought what it called an "unlawful termination" of the agreement.

On Monday, DirecTV said the agreement reflects full satisfaction and the dismissal of all claims between the parties, including the $63 million judgment entered in May in favor of DirecTV against Pegasus. Taking into account this judgment, the aggregate purchase price is $938 million.

The agreement has been approved by the creditors' committee in Pegasus' Chapter 11 proceedings. The transaction is expected to be completed within the next four to six weeks, subject to the approval of the U.S. Bankruptcy Court in Portland, Maine, and to applicable antitrust filings and approvals. DirecTV expects that the bankruptcy court hearing to approve the transaction will be held in late August. DirecTV also expects to complete the migration of Pegasus customers to DirecTV within 30 to 45 days thereafter.

Upon the deal's completion, Pegasus Satellite parent Pegasus Communications would retain ownership of certain other assets, which include satellite licenses and terrestrial communications licenses.

On Monday, DirecTV shares rose 54 cents to $16.75, and Pegasus Communications rose $1.09 to $21.20.