INTELSAT REACHES $5 BILLION BUYOUT DEAL
A group of private equity firms valued Intelsat at $5 billion in a new deal announced Mon. The announcement came just 3 months after the company reversed an earlier statement from CEO Conny Kullman that the company wouldn’t be considering a private equity buyout (CD May 24 p2).
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The company would be owned in part by European firms Apax Partners and Permira, the firms that bought Inmarsat nearly a year ago. Madison Dearborn Partners and Apollo Management, American firms, will also participate in the transaction, Intelsat said. Madison and Apollo (with Soros Private Equity Partners) made bids for Inmarsat that were eventually dismissed. The deal includes $2 billion net debt.
Analyst Roger Rusch, pres. of TelAstra, said the deal is unlikely to raise regulatory issues simply because of the potential similarity in ownership between Intelsat and Inmarsat. “The businesses are complementary, but not necessarily overlapping,” he said. Another industry analyst said being held in part by 2 of the same parent firms wouldn’t “accentuate the market position they both have.” Intelsat will be held by Zeus Holdings, separately from Inmarsat, which is held by Grapeclose. Rusch said while the 2 businesses could be combined into one to save money, there aren’t obvious business synergies.
But attorney Phillip Spector, representing SES Americom, characterized the deal as “effectively… a merger of Intelsat and Inmarsat.” Americom has made several filings with the FCC concerning ORBIT Act requirements it says Inmarsat hasn’t complied with, including an IPO requirement that it says must be an equity offering rather than a debt offering. Inmarsat has objected strongly to the arguments. Spector said any “merger” of the companies “poses issues under the ORBIT Act, which clearly viewed companies as separate and needing to remain separate.” In addition to the fact that neither has completed an equity IPO, the deal creates “significant potential for competitive abuse in areas such as U.S. government marketing and mobile services,” Spector said. An Intelsat spokeswoman said a combination of any or all of Intelsat’s services with Inmarsat “hasn’t been contemplated at this time.” She said the services overlap “a little bit,” but the businesses are really different with “different satellites, different target markets.”
Spector said the private equity buyout was risky for Intelsat, since the FCC hasn’t made a decision on whether Inmarsat’s buyout and public debt offering comply with ORBIT. Previously, Intelsat has argued the term “initial public offering” is associated with equity securities because it’s only been interpreted by the FCC in that connection (CD May 23 p2). An Intelsat spokeswoman said the deal doesn’t contain specific provisions about the ORBIT Act or its requirements, so “if we have to do an IPO, we'll do an IPO, there’s no penalties.” She said the pending decision on Inmarsat -- whether the company’s debt offering and private equity sale comply with ORBIT -- is expected before Intelsat’s IPO deadline of June 30, 2005. Rusch said an accelerated IPO is about the biggest surprise that could face the companies. Rusch said while the companies may not offer securities and be accountable to the SEC, they have divested themselves of govt. ownership and created a level playing field as ORBIT was created to do.
Intelsat said it needs approval from 60% of its shareholders before closing the deal. Regulatory and antitrust reviews must also be completed. The deal is expected to close by year-end, Intelsat said.