SkyTerra Communications to Acquire 50% of Hughes Network Systems From DirecTV Group  

EL SEGUNDO, Calif. & NEW YORK, Dec. 7/Satnews Daily/ ¾ SkyTerra Communications, Inc. (OTCBB:SKYT), an affiliate of Apollo Management, L.P., a New York-based private equity firm, has agreed to acquire 50 percent of Hughes Network Systems (HNS), a wholly owned subsidiary of The DirecTV Group, Inc. (NYSE:DTV).

Under the agreement, a new entity that contains the assets of HNS will be created in a transaction that values HNS at approximately $360 million. Substantially all of HNS' assets and liabilities will be contributed to the new limited liability company and, upon closing, 50 percent of the ownership of the new company will be purchased by SkyTerra.

In a statement, the DirecTV Group said it will receive approximately $251 million in cash at closing, subject to certain adjustments, and 300,000 shares of SkyTerra common stock, and will retain a 50 percent interest in the new company. But the statement said the cash proceeds received by the DirecTV Group have been reduced by an agreed-upon amount necessary to complete the new company's planned construction of Spaceway 3.

To finance a portion of the transaction, the new company has received definitive commitments for approximately $375 million of debt financing, which includes a $75 million revolving line of credit. SkyTerra will acquire its interest in the new company for $50 million in cash and the 300,000 shares of its common stock.

The transaction, the statement said, does not include rights to the first two satellites designed for the Spaceway program, Spaceway 1 and 2, which have been redeployed to support DirecTV's direct-to-home satellite broadcasting business and are scheduled for launch next year. However, the transaction does include rights related to the third Spaceway satellite which is currently under construction, as well as rights to a contemplated fourth Spaceway satellite and certain ground equipment and related intellectual property.

"This transaction provides the best alternative for The DirecTV Group to realize value for these assets while permitting us and our shareholders to participate in the potential increase in value of the joint venture with SkyTerra and Apollo," said Chase Carey, president and CEO of The DirecTV Group.

"We will be acquiring 50 percent of a leading satellite network services provider and gaining a world-class partner in DirecTV,” stated Jeffrey A. Leddy, SkyTerra's president and CEO. "We believe the Spaceway 3 satellite will be uniquely positioned to capitalize on continuing growth in enterprise and consumer broadband applications."

After two separate divestitures completed earlier this year, HNS is primarily focused on providing broadband satellite networks and services to enterprises via its core enterprise Very Small Aperture Terminal (VSAT) business. HNS' other businesses include Consumer DirecWay, , Mobile Satellite and Carrier Networks, as well as the portion of the Spaceway satellite platform that is under development and that will not be used in DirecTV's direct-to-home satellite video broadcasting business.

The transaction, which is expected to close in the first half of 2005, is subject to certain regulatory approvals, receipt of financing and other closing conditions. The DirecTV Group expects to report a non-cash pre-tax charge of approximately $200 million in the fourth quarter of 2004 related to this transaction.

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