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News Corp. Knocks Pegasus Off Its Perch

The rural satellite-TV broadcaster takes a hit after a Murdoch underling snickers at its stock price.

News Corp. (NWS) - Get Free Report took Pegasus Communicationsundefined down a peg on Tuesday.

Shares in Pegasus, which resells the DirecTV home satellite service in which News Corp. is taking a controlling stake, plummeted 13% Tuesday afternoon, following a News Corp. executive's disparaging comments about Pegasus' stock price.

Those remarks, which came at a New York City conference organized by a satellite industry trade group, indicate that Pegasus investors who are hoping News Corp. will buy out the company as part of the DirecTV takeover may have set their hopes a little too high.

Fueled by the prospect of a Rupert Murdoch-funded payday, shares in Pegasus nearly doubled in the weeks following the April 9 announcement that Murdoch's News Corp. would take a controlling stake in DirecTV parent

Hughes Electronics


. After closing at $16.60 on the eve of the Hughes news, Pegasus' shares rose as high as $32.73 in early May.

On Tuesday, Pegasus' stock fell $3.80 to close at $25.87.

All of that decline came after a speech by News Corp. director Chase Carey at the investor meeting, held by the Satellite Broadcasting and Communications association. Carey, slated to become chief executive officer of Hughes after News Corp. gets its stake, said Pegasus' current share prices "defy the reality" of the cash flows on which the company should be valued.

Certainly, News Corp. wants to do something about DirecTV's relationship with Pegasus, which has exclusive rights to distribute the direct broadcast satellite service in certain rural areas. While both DirecTV and rival DBS operator

EchoStar Communications

(DISH) - Get Free Report

are reporting booming growth for the subscribers under their control, Pegasus has reported declining subscriber counts over more than a year.

Both Carey and Murdoch expressed displeasure with Pegasus on a conference call following the announcement of the Hughes deal last month. "The Pegasus situation they have really is not something that works in the marketplace," said Carey at the time, according to a CCBN and FDCH e-Media transcript of the call.

How News Corp. hopes to resolve the situation is unclear, and it would not necessarily be through a buyout. A morass of litigation involving Pegasus and News Corp. is scheduled to go to trial on June 3.