DirecTV Is Allowed to End Pegasus Deal

DirecTV Group Inc. persuaded a federal judge Thursday to let it take away Pegasus Communications Corp.’s rights to resell DirecTV service to 1.1 million rural U.S. households.

El Segundo-based DirecTV, the nation’s biggest satellite-television provider, said this month that it would end Pegasus’ exclusive contract to resell service in 41 states, prompting Pegasus’ satellite-TV unit to file for bankruptcy protection. Pegasus then asked U.S. Bankruptcy Court James B. Haines Jr. to block DirecTV from terminating the deal, citing bankruptcy laws that shield contracts and other assets from creditors’ claims.

“Things lie as they are at bankruptcy, and the relief is not available,” Haines said at a hearing in Portland, Maine.

Haines’ ruling is a victory for DirecTV, which has been losing subscribers in Pegasus territories and earlier offered $750 million to Pegasus for rights to serve its subscribers directly. Pegasus made 96% of its revenue last year reselling DirecTV service.

Pegasus spokesman Michael Freitag declined to comment on the judge’s ruling.

Haines said DirecTV did violate Pegasus’ rights by using the company’s subscriber information after it filed for bankruptcy protection.

DirecTV spokesman Bob Marsocci said the company would comply with a court order not to use Pegasus’ subscriber information.

However, Haines said Pegasus’ contract to resell DirecTV wasn’t protected because it was ended before the company filed for protection.

The ruling does not preclude Pegasus from seeking other legal means to preserve the contract, he said.

Pegasus owns rights to resell DirecTV broadcasts to 8.4 million households under a 1994 agreement between DirecTV and the National Rural Telecommunications Cooperative, which granted exclusive DirecTV marketing rights in some regions to Pegasus and other companies. The Herndon, Va.-based association joined DirecTV in seeking to terminate the contract.

Pegasus Satellite Television and 28 other Pegasus Communications affiliates sought protection from creditors June 2. Pegasus Satellite listed $1.76 billion in assets and $1.98 billion in debt in court papers.

Shares of Bala Cynwyd, Pa.-based Pegasus Communications fell 28 cents Thursday to $17.32 on Nasdaq. The shares have fallen 38% this year.

Shares of DirecTV fell 14 cents to $17.25 on the New York Stock Exchange.