ENGLEWOOD, Colo. -- Tele-Communications Inc. said yesterday that it is spinning off its satellite operation in a bet that the business, valued at $2 billion to $3 billion, can expand faster on its own.
The new company, TCI Satellite Entertainment Inc., will hold a 20.9 percent stake in PrimeStar Partners LP, which beams television programs to 1.25 million customers who own 36-inch satellite dishes.
PrimeStar competes with DirecTV Inc., whose 1.6 million subscribers own 18-inch dishes.
Tele-Communications Chief Executive John Malone and Chairman Bob Magness -- who will own the largest stakes in the new company and are likely to have board seats -- are taking advantage of a booming market for satellite companies to fuel the expansion, investors and analysts said.
The spinoff is valued at $2 billion to $2.5 billion, according to UBS Securities analyst Rick Westerman. The valuation assumes that the company will expand its subscribers to 3.6 million in 2000 from 1.25 million at the end of March.
"The market hasn't been giving TCI credit for the value they've built up in the satellite business," said William Nygren, director of research for Harris Associates, TCI's fourth-largest shareholder with 14.6 million shares.
The company's stock closed up 50 cents at $18.375 in trading of 7.8 million shares, making it the No. 6 most-active issue yesterday.
TCI's shares rose just 1.4 percent in the past year, compared with a 24 percent return from the Standard & Poor's 500 index.
"This spinoff is designed to enhance long-term value of the TCI Group stockholders' investment in TCI," said John Malone, president and chief executive of the nation's largest cable television company.
Tele-Communications will not retain any equity interest in the new company, which will be structured as a tax-free spinoff for shareholders.
Holders of Series A TCI Group common stock are to receive Series A common stock of TCI Satellite Entertainment, and holders of Series B TCI Group common stock are to receive Series B TCI Entertainment common stock, TCI said.
The satellite operation is the third business spun off by TCI in the past year as it continues to expand its holdings in cable television.
This week, Viacom Inc. received approval from the Internal Revenue Service to spin off its cable systems and sell them to TCI.
Viacom's 1.2 million subscribers will be added to Tele-Communications' 13 million.
Worldwide, shares in satellite companies have risen with the spread of televisions, mobile telephones and Internet users, whose signals are transmitted by satellites orbiting Earth.
Shares of U.S.-listed Panamsat Corp., the world's first commercial satellite operator, are up 69 percent from their initial public offer in September.
Shares in competitor Globalstar Telecommunications Ltd. have almost tripled from their 1995 initial sale.
Last week, Indonesian satellite operator Pasifik Satelit Nusantara went public, and yesterday Asia Satellite Telecommunications Holdings Ltd.'s American depositary receipts rose 28 percent in their first day.
Pub Date: 6/20/96