HUGHES BUYING PANAMSAT TO FORM SATELLITE NETWORK.

Byline: Farrell Kramer Associated Press 

Hughes Electronics' $3 billion purchase of PanAmSat highlights the growing demand for satellite services, particularly by television networks hungry for new viewers.

The deal, announced Friday, would create the world's second-largest satellite network and add global reach to Hughes' primarily domestic operations. Some of the most fertile ground for direct-to-home satellite TV is found overseas, where cable is not a major force.

``That's why it's such a powerful merger,'' said Linda Killian, a principal at Renaissance Capital Corp.

Hughes Electronics Corp., the world's largest manufacturer of satellites, plans to merge its Hughes Communications Galaxy satellite business with PamAmSat Corp. to form a new company keeping the PamAmSat name.

The El Segundo-based Hughes, owned by General Motors Corp., will hold 71.5 percent of the new PamAmSat after the widely expected deal is complete.

While both companies also provide data and telephone transmission services to their corporate customers, Killian said the real profits in the business come from transmitting entertainment programming.

The acquisition, for cash and stock, also helps Hughes by giving it better coverage with a larger fleet of orbiting satellites.

``It gives them more global reach,'' said Jon Savas, an analyst at Scotia Capital Markets Inc. ``They're buying contracts that broadcasters and corporations have through PanAmSat.''

Hughes operates 10 communications satellites, with three more under development and planned for launch through 1998. PamAmSat owns four satellites and has another four under construction, also planned for launch in the next few years.

The satellites beam signals from leading television networks like NBC and CNN, as well as the corporate data and telephone transmissions.

``Most of the U.S. is pretty much cabled out,'' said Killian. With recent advances in the development of small satellite dishes, rural areas in the United States that may not be populous enough to attract cable operators can order up program choices previously unavailable.

Also, American television is in hot demand overseas and satellite operators, which profit by transmitting signals for a fee, are eyeing that market. PamAmSat, for example, is strongest in Latin America.

``Satellites have proven to be one of the most effective and competitive ways to communicate, whether by voice, computer, fax or video, by anyone, from anyplace, at anytime to anywhere on the planet,'' C. Michael Armstrong, chairman and chief executive of Hughes Electronics, said in a statement.

In trading Friday on the Nasdaq Stock Market, PanAmSat shares lost 12-1/2 cents each to close at $27.62-1/2. General Motors Class H shares gained $2.50 each to $60.25 on the New York Stock Exchange.

Frederick A. Landman, PamAmSat's president and CEO, will hold the same positions at the new PamAmSat. The companies said they do not foresee job cuts at the company, which will employ about 500 worldwide. The two companies have a combined $500 million a year in revenue.

The deal's completion requires approval of the Federal Communications Commission, and the companies expect that in six to 12 months. It also requires shareholder approval. PamAmSat shareholders with more than 90 percent of its voting power have already agreed to vote for it.

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Photo

Photo: (color) Fredrick Landman, left, CEO of PanAmSat Corp . and C. Michael Armstrong, CEO of Hughes Electronics, announce the merger of satellite operations.

Associated Press