BUSINESSWEEK ONLINE : SEPTEMBER 15, 1997 ISSUE
INSIDE WALL STREET

High Hopes For A Satellite Play?

Late last year, when Wall Street was gushing over DirecTV and other satellite-based entertainment systems, cable TV giant Tele-Communications spun off TCI Satellite Entertainment (TSATA). The stock ran as high as 20 in the when-issued market but soon sank as TCI holders dumped shares. After trading under 6 in the spring, shares are now at 8. Analyst Steven Bregman of The Spin-Off Report says the stock is underpriced even if you assume no rise in subscription rates.

TCI Satellite Entertainment's main attractions are a 21% interest in Primestar Partners, which provides 150 program channels via satellite, and PRIMESTAR by TCI, which markets Primestar in regions that account for 38% of the country's households. Neither have been stellar performers, but some think that soon will change.

Pending approval from the Federal Communications Commission, TCI Satellite plans to combine PRIMESTAR by TCI with other Primestar units owned by cable operators such as Cox, Time Warner, and Comcast. ''That will make for a larger company, with better marketing and higher operating efficiencies,'' says William Nygren, director of research at Harris Associates, which holds 9 million shares in some Oakmark mutual funds and separate accounts. If the reorganization is O.K.'d by regulators and shareholders, the new PRIMESTAR would start with 1.8 million subscribers.

News Corp. Chairman Rupert Murdoch wants in on PRIMESTAR as well. He plans to contribute ASkyB, his joint venture with MCI Communications, in exchange for convertible preferred stock. ASkyB has two satellites under construction and the requisite high-powered broadcasting licenses. The ASkyB deal is also subject to regulatory approval, but, says Nygren, it's not necessary to make the stock attractive. Nygren estimates the shares are worth $10 to $12 and, he notes, that's likely to rise as satellite TV develops.

Earlier this year, the TCI Satellite shares became so cheap that TCI Chairman John Malone dipped into his own pocket to buy nearly 1.5 million at just under 8. Anyone buying now gets it around the same price as the chairman.

BY JEFFREY M. LADERMAN

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