Intelsat, PanAmSat Announce Intent to Merge

Industry lawyers said an Intelsat/PanAmSat merger won’t be approved without major scrutiny by either the FTC or the Justice Dept. The European Commission (EC)could be a hurdle as well, they said. Intelsat Gen. Counsel Phil Spector said he expects the Justice Dept. to handle the review because it traditionally has handled FSS industry mergers. Spector said he expects some filings to be required in Europe, “but very few.” In fact, Spector said, Intelsat is uncertain whether any kind of filing will be required before the EC. “Neither company has very much in the way of revenues in Europe,” he said: “I think it will not be a significant factor from a regulatory standpoint.”

Intelsat CEO David McGlade, who would be the combined firms’ CEO, addressed antitrust concerns in a press conference Mon.: “We feel that we're in a position not to have to divest satellites, and we're going to take that position with all the regulatory authorities.” The companies’ businesses and clients are complementary, said officials from both. Intelsat has large contracts with the U.S. govt., and its forte is international telephony and data. PanAmSat, a leader in cable programming and DTH business in the Americas, has a videocentric customer base. About 2/3 of PanAmSat’s revenue is video-based, with around half coming from the U.S. The firms’ largest FSS competitors are SES Astra and Eutelsat in Europe, and SES Americom in the U.S. But their biggest competition isn’t in FSS -- it’s from “fiber and other companies that are delivering a lot more signals than we are,” said PanAmSat CEO Joseph Wright: “Our competition is really coming from terrestrial, and more and more so every day.”

Intelsat and PanAmSat officials downplayed the merger’s size. “I think this is just a normal step going forward in terms of creating a more mature industry,” Wright said. “It’s kind of a continuation of the evolution that has already started,” said McGlade. “Our industry has been shaped by important mergers,” said Wright. Intelsat will have to apply for transfer of control of the PanAmSat licenses, including those for orbital slots, at the FCC. Asked how the merger could impact spectrum policy overall, Spector said he “doesn’t think it has much impact overall.” In a broad sense, Spector said, strengthening the FSS industry may aid the satellite industry’s on-going battle to hold onto satellite spectrum that the FCC has been reallocating to terrestrial wireless.

If approved, the deal would jump start the Fixed Satellite Services (FSS) consolidation officials have mentioned so often in bemoaning overcapacity problems that have plagued the industry since the ambitious 1990s.

But while industry consolidation has been expected for some time, satellite industry officials called the Intelsat/PanAmSat merger an unexpected and colorful combination because of the companies’ long, contentious history. PanAmSat cracked the FSS market open in the late 1980s. Before PanAmSat introduced competition as the first private sector company to enter the FSS market, Intelsat had a govt.-sanctioned monopoly on the international satellite services market.

Friction between the companies began to dissipate a few years ago as soon as Intelsat privatized, industry lawyers said. But, they said, the long and bitter rivalry left numerous battle scars. The announcement that PanAmSat would be joining with former rival Intelsat makes for an unexpected twist in a classic underdog story: “Rene Anselmo must be spinning in his grave,” muttered many a satellite industry official Mon. PanAmSat founder Rene Anselmo put his own money on the line to create PanAmSat in 1984, fighting “tooth and nail” for market access, industry lawyers said. The company launched the first privately owned international satellite, PAS 1, in 1988 after fighting long and hard for licensing.

When asked how PanAmSat founder Rene Anselmo might react to the merger news, Spector said he'd probably “be very pleased with what’s happening.” Anselmo wanted to see a privatized Intelsat, Spector said: “When I was one of Rene Anselmo’s lawyers in the 1980’s when we were doing battle with Intelsat, Intelsat was monopolistic and was actively seeking to keep others out of the market.” But today, Spector said, Intelsat is entirely privately owned, and is very much oriented toward competing with others based on quality and pricing of services: “In that context, it is a much more diverse organization than the old Intelsat. I think [Anselmo] would be very pleased with what’s happening. Now we have the thing he most wanted to see -- a privatized Intelsat.”

PanAmSat went public just over 6 months ago, having been bought only a year before by the Carlyle Group, Providence Equity Partners and Kohlberg Kravis Roberts. Intelsat was bought by private equity firms Apax Partners, Apollo Mgmt., MDP Global Investors and Permira Advisors this year.

Officials from both companies said they've been working separately on IPTV, eyeing it as a major growth area in U.S. business. “Together, we're going to be able to bring new services and technologies to the market much faster and in a much more professional way,” Wright said. McGlade and Wright also said they're excited about the prospect of bringing advanced services to developing countries. The firms said in a joint statement they will have a “portfolio of customers in emerging nations and remote areas.” Officials said in the statement they will intensify the firms’ focus on developing advanced communications technologies, expanding delivery of HDTV and broadband as well.

Asked about a rumored New Skies/Intelsat merger (CD Aug 22 p8), McGlade responded: “We have regular conversations with a number of operators. That’s all I'll say. We're announcing our merger with PanAmSat today, which we think is the best decision.” Satellite Industry Assn. Exec. Dir. David Cavossa said he wouldn’t be surprised “if this spurred another round of consolidations among the global and regional satellite providers, further strengthening the health of the commercial satellite industry.” Satellite operators have been talking about further consolidation for some time, Cavossa said: “Today’s news confirms that speculation.”

Both firms’ boards back the agreement, which McGlade said they approved over the weekend. McGlade said they expect to use Intelsat’s D.C. hq as U.S. administrative hq, and the new company to keep the Intelsat name. Intelsat employs about 800 people, and PanAmSat around 600, the executives said. Employees will be told of changes in coming months, McGlade and Wright said.

Credit Suisse First Boston is Intelsat’s financial adviser. Its legal advisers are Wachtell, Lipton Rosen & Katz; Paul, Weiss, Rifkind, Wharton & Garrison, and Milbank, Tweed, Hadley & McCloy. Morgan Stanley is PanAmSat’s financial adviser, and Simpson Thatcher & Bartlett is PanAmSat’s legal adviser.

The merger does affect some satellite law firms. Intelsat Gen. Counsel Phillip Spector, who took the legal helm at Intelsat in Feb., has waged regulatory battles on behalf of both PanAmSat and SES Americom. However, in the late 1980’s Spector fought against a very different Intelsat as one of the lead attorneys for PanAmSat in its quest to dismantle what was then a powerful monopoly. For about a decade, Spector was at the forefront of the PanAmSat battle with then-partner Henry Goldberg. Later, Spector joined the D.C. office of Paul Weiss, where he helped pave the way for SES’s purchase of GE Americom, the first major transatlantic satellite company merger. Goldberg still represents PanAmSat. His son Daniel is CEO of FSS competitor New Skies, also rumored to be in talks with Intelsat about a possible buyout.