Hughes Electronics May Buy Panamsat

In a bid to extend its domestic communications satellite dominance around the globe, aerospace giant Hughes Electronics is negotiating to acquire Panamsat Corp. in a deal reportedly worth nearly $3 billion, sources confirmed Thursday.

The talks, which have been rumored for weeks in the trade press, come five months after Panamsat disclosed it had hired the investment banking firm of Morgan Stanley & Co. to explore a possible sale.

If a deal is reached with the Greenwich, Conn.-based satellite operator, El Segundo-based Hughes would become the world’s No. 2 satellite company behind the giant government-owned satellite consortium, Intelsat, and be well positioned to become a force in the global delivery of video programming by satellite.

“What this deal would do for Hughes . . . would be to add a substantial international component to their operations,” said Tony Trujillo, a marketing manager for Intelsat.

Executives at Hughes and Panamsat declined to comment. But challenging Intelsat, which has 24 satellites and the backing of more than 140 member nations, may prove tough even for a giant such as Hughes.

Although Panamsat’s four satellites can transmit video programming and data services to almost any country in the world, the company and its partners have only been able to gain entry to a few oversees markets, including South Africa, Taiwan, Southeast Asia and parts of Latin America, a company executive said.

And Thursday, a federal court in New York handed Panamsat another setback when it dismissed a 1989 antitrust lawsuit in which Panamsat alleged that Comsat Corp. and other Intelsat partners conspired to prevent the development of rival satellite systems.

In the $1.5-billion suit, Panamsat alleged that Comsat refused to purchase time on Panamsat’s satellites, used unfair pricing practices and interfered with Panamsat’s efforts to do business around the world.

U.S. District Judge John F. Keenan, however, ruled that Panamsat failed to show sufficient evidence of a conspiracy.

Nevertheless, Hughes is said to be pushing hard to close the deal with Panamsat despite also being stymied by sticky tax issues that have hamstrung the Mexican media conglomerate Groupo Televisa, which owns 40.5% of Panamsat. (Another 40.5% is owned by the Anselo family and the remaining 19% of the company is publicly owned.)

Televisa could face a huge capital gains tax bill because the value of its stake in Panamsat has ballooned to $1 billion from $200 million in only five years, industry analysts say.

But Televisa is said to be eager to cash out its position in the burgeoning satellite market, which is expected to explode with competition over the next decade as more than a dozen firms invest more than $30 billion to launch new generations of satellites aimed at increasing global telephone and video communications.

Hughes, the No. 1 builder of satellites, already has a strong presence in the domestic satellite business and a hugely successful direct broadcast satellite subsidiary called DirecTV, which has signed up 2 million customers in two years.

Although DirecTV is not part of the Panamsat deal, it could be the model for Hughes’ global satellite ambitions, some experts say.

“Hughes has designs on an international direct-to-home service” similar to DirecTV, said Scott Blake Harris, a Washington communications lawyer, who recently served as chief of the Federal Communications Commission’s international bureau.

DirecTV is “not the driving force behind the deal,” said Harris, but he added: “Panamsat is perhaps the most aggressive of the new competitors to Intelsat . . . What you have seen over the last couple of years is the globalization of satellite service.”