Re: AOL & Hughes

Rohit Khare (
Tue, 22 Jun 1999 20:00:55 -0700

At 7:23 PM -0700 6/22/99, Tim Byars wrote:
>Don't know where this hit, but AOL bought into Hughes Electronics today
>for $1.5 billion.

At 40,000 households currently subscribing to DirecPC, that's
almost... $40,000 a household. Ten times what AT&T paid for MediaOne,
but they're obviously betting on expanding to some appreciable
fraction of the millions of DirecTV households... oh, wait, that's
only 5M so far == $300 per existing household. Suppose they used that
to buy every damn last one a free new DTV set-top box with AOLTV on
it... oh wait: the current boxes use *phone lines* for the Internet
part, not satellites... oops!

At least no one's speculating with currency that matters:
blue-bubble-balloon-bills being exchanged for more of the same. It's
when cash enters the picture I have horrifying visions of money and
anti-money annihilating each other...

Oh no, oh my: that IS what's happening. Nice of em to lock in a 24%
return... what it actually is AOL buying GMH bonds, after a fashion.
So from AOL's perspective, this is alchemy converting balloon-bucks
to cash by investing surplus cash from bubble-driven equity sales in
nice, safe, GM debt. Equity, begone!

>Under the agreement, America Online will make a $1.5 billion
>strategic investment in a General Motors equity security, which
>carries a 6-1/4% coupon rate, that is automatically convertible into
>GM Class H common stock (GMH) at a 24 percent premium in three
>years. GM will immediately invest the $1.5 billion in a security of
>Hughes under similar terms where it will be employed to implement
>the strategic alliance between AOL and Hughes. AOL said the
>investment would be non-dilutive to its earnings.
>Over the next three years, Hughes is making a major commitment to
>market AOL TV and AOL-Plus, as well as accelerate the growth of
>DIRECTV and DirecPC. Among its planned expenditures are:
>** More than $500 million for AOL-Plus via DirecPC through both
>America Online brands and Hughes retail channels;
>** Up to $500 million for DIRECTV, including more than $150 million
>in marketing to AOL members;
>** Approximately $400 million for the combined DIRECTV/AOL TV service; and
>** Approximately $100 million for DirecDuo, which enables
>subscribers to access the DIRECTV and DirecPC networks with a single
>satellite dish.
>America Online and Hughes have agreed to explore making broadband
>satellite offerings available in Latin America as that market