The Satellite News Financial Ticker

Wall Street Analysis

Last week’s announcement that El Segundo, Calif.-based The DirecTV Group [DTV] agreed to sell the set-top box (STB) operations of Germantown, Md.’s Hughes Network Systems (HNS) left several satellite analysts speculating about the sale of the rest of the HNS assets. With executives of The DirecTV Group stating unequivocally that their company’s core business is satellite television alone, all of HNS should expect to be pared.

Remaining assets of HNS include the DirecWay VSAT and Ku-band consumer broadband service; a proposed Ka-band, enterprise broadband service that would use yet-to-be-launched SpaceWay satellites; and satellite communications, networks and equipment businesses.

Bob Peck, a satellite analyst with New York’s Bear Stearns, said he expects The DirecTV Group to “monetize” all or most of its holdings in HNS. The big question, in Peck’s view, is whether the $1.8 billion SpaceWay project will be sold or will be used to provide local HD programming for the U.S. DirecTV satellite television service?

Another Wall Street analyst, William Kidd of Vintage Research, wrote to his clients last week that he believes SpaceWay is a candidate for the block. HNS has a diversified collection of businesses that makes the company difficult to sell without breaking it up, Kidd added.

Thomson [TMS], however, seems to have purchased the HNS STB business at a modest price. This not only is Kidd’s view but also that of Tim Boddy, a London- based Goldman Sachs analyst. Indeed, Thomson is acquiring the STB business at a “great price” for the buyer, Kidd said. Other STB manufacturers are trading at “much loftier” revenue multiples than the price of 52 percent of revenues paid by Thomson, Kidd wrote in his research note. With STB upgrades possible as DirecTV shifts from basic services to Digital Video Recorders (DVRs) and high-definition STBs, Thomson’s revenues from the purchase of the HNS business could rise from a minimum of $1.5 billion to as much as $4 billion, Boddy predicted.

Either way, the first purge of a business at HNS has occurred, and more should be expected.

Paul Dykewicz is senior editor and senior analyst of Satellite News. He can be reached at 301/354-1769 or at [email protected].