Internet-by-satellite venture

Starband

may raise as much as $150 million by private placement, compared with earlier reports of $100 million.

Forced by the adverse market conditions to withdraw from a $290 million Nasdaq IPO, the company needs money badly. Its backers in its private round may include the

AOL-Time Warner

(NYSE:AOL) group,

Ma'ariv

reported today.

As first published by TheMarker.com magazine, Starband's offering will be led by Merrill Lynch. Some sources believe however that it will be led by Morgan Stanley. Merrill Lynch was also supposed to lead Starband's IPO, supported by underwriters Credit Suisse First Boston and ING Barings.

Starband is a joint project by

Gilat Satellite Networks

(Nasdaq:GILTF),

Microsoft

(Nasdaq:MSFT), ING Barings bank and

EchoStar Communications Corporation

(Nasdaq:DISH).

ING Barings holds 8.9% of Starband's shareholders equity, which it bought for $25 million. Gilat owns 40% of the company. It did not invest capital but provides products at heavily discounted prices.

Investment from AOL?

AOL-Time Warner may invest in Starband after its disappointment with

Hughes Electronics

(NYSE:GMH),

Ma'ariv

reported today.

Hughes is a subsidiary of

General Motors

(NYSE:GM). Hughes owns Starband rival DirecTV, but wants to sell it. GM's board had approved a deal with Rupert Murdoch's News Corp (NCP.AX), but the sale may be torpedoed by Hughes' chairman Michael T. Smith.

Unhappy with the terms of the deal with News Corp, which would also have left him out of a job, Smith is pushing to raise debt in order to spin off DirecTV as an independent company. He has reportedly approached Microsoft for backing, among others. GM has reportedly given Smith three weeks to find an alternative to the News Corp deal.

Microsoft, as said above, owns a piece of Starband. If Microsoft invests in DirecTV and if AOL invests in Starband, both giants will have holdings in both satellite-via-Internet providers.

Reuters

reports that Microsoft has apparently agreed to invest up to $5 billion in a News Corp-led deal.

Hungry for cash

Starband needs the private placement badly. The company lost $82.1 million in 2000. Even the generous backing of its shareholders and bank loans won't get the company through 2001, it would seem.

When filing its draft prospectus for the Nasdaq float six months ago, Starband reported a cash balance of $130 million, partly due to credit from local banks.

Bank Leumi alone lent it $90 million. Israel Bank Discount kicked in $60 million and the First International Bank provided $30 million.

Starband was originally established as Gilat@Home in order to provide bi-directional Internet service via satellite, mainly to the North and South American markets.

Gilat CFO Yoav Leibovitch refused to confirm anything about the private placement today. He said the company will be issuing a formal statement on Monday.