2005: A Year of Consolidation

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A year of major changes in the commercial space industry ended with more consolidation as SES Global swallowed up New Skies Satellites Holdings.

But adding New Skies Satellites Holdings’ five satellites to the SES Global fleet will cause so few overlaps that SES will not cancel any of the seven satellites it has in various stages of construction, SES officials said.

Bermuda-registered New Skies, whose headquarters are in The Hague, Netherlands, will operate as a third SES Global operating company after SES Astra in Europe and SES Americom in the United States, SES Chairman Romain Bausch said in disclosing the proposed New Skies purchase Dec. 14. New Skies will focus on the Middle East, South Asia and Latin America.

New Skies’ penetration of the Indian direct-to-home television market — owing to a temporary lifting of India’s no-foreign-satellites rule — is a promising area for future growth, Bausch said.

Under the agreement New Skies’ current management will remain with the company for at least one year after the purchase. SES is buying New Skies for $760 million in cash and the assumption of New Skies’ debt, expected to be about $400 million when the deal closes in mid-2006.

SES Global Executive Vice President Rob Bednarek said combining some SES and New Skies sales forces, teleports and satellite operations facilities should yield nearly $30 million in cost savings.

Further cost savings will result from the fact that SES is one of New Skies’ top-10 customers, purchasing New Skies capacity over the Middle East on behalf of SES customers including the company’s Americom Government Services division.

Bausch said synergies in providing capacity to the U.S. military and other government agencies around the world was one of several factors that argued in favor of the purchase.

The financial markets apparently agreed. SES Global shares on the Euronext exchange rose as details of the deal were digested.

New Skies’ shares on the New York Stock Exchange, which had traded upward in the past four months on rumors of a deal, dropped 4 percent and fell below the $22.52 per share that SES Global is paying.

In a Dec. 14 conference call with investors, Goldberg was obliged to explain why New Skies — owned 55 percent by the Blackstone Group, a private-equity company — accepted SES’s terms.

Several investors asked why New Skies, whose financial health is sound, rushed into the arms of the first suitor.

Goldberg responded that New Skies sought bids from “essentially every conceivable would-be buyer of the company over the course of the past couple of months.” New Skies’ owners, he said, did not dare let the acquisition opportunity pass.

Goldberg said New Skies investors had always assumed the company would be an industry-consolidation play. “There was a likelihood that if we sat out for some period of time, we ultimately could have seen consolidation happening around us and been left out of the process, which I don’t think … would have been in shareholders’ interests,” Goldberg said. “That fundamentally is what the board bore in mind.”

Industry officials said two potential bidders for New Skies — satellite-fleet operators Intelsat of Bermuda and Washington, and Eutelsat of Paris — could not make a firm bid because they are preoccupied with financial transactions of their own. Intelsat is awaiting regulatory approval of its $3.2 billion purchase of rival PanAmSat, and Eutelsat only just completed its own Initial Public Offering (IPO) after a failed attempt in October.

Goldberg said waiting for a better bid — especially since New Skies’ growth in 2006 will be slower than in 2005 — was judged too risky.

“I don’t think any of us believed it was in our interests to not take that bird in the hand, [and to wait] for some speculative opportunity that may or may not have been there down the road,” Goldberg said.

The SES-New Skies agreement capped a year in which the overall financial health of the commercial space industry appeared to improve.

Four satellite operators — New Skies, Inmarsat of London, satellite-radio operator WorldSpace of Washington and Eutelsat of Paris — successfully completed initial stock offerings. A fifth company, Loral Space and Communications, exited Chapter 11 bankruptcy proceedings and returned to the stock market after more than two years of reorganization.

The biggest fleet operators reported a slight growth in revenues. In addition, satellite transponder lease prices stabilized after several years of downward drift due to overcapacity.

While one operator — Alcatel-owned EuropeStar of London — was sold in a transaction with PanAmSat, two more were created. QuetzSat of Mexico and Ciel of Canada, both with SES Global and EchoStar Communications Corp. as backers, began operations and plan new satellites for direct-broadcast television in North America.

Satellite broadband, both fixed and mobile, entered the commercial market with the introduction of WildBlue Communications’ service in the United States and a similar product line in Canada, both using Telesat Canada’s Anik F2 satellite’s Ka-band payload.

In Thailand, Shin Satellite’s iPSTAR Ku-band satellite, launched in August, is inaugurating its own consumer-broadband service in 2006.

On the mobile front, the launch of a second Inmarsat-4 satellite for London-based Inmarsat permitted the December commercial introduction of mobile-broadband service that will be available in the Americas, Europe and parts of Asia by mid-2006.

Inmarsat’s distributors also began an expected consolidation with the purchase, by Stratos Global of the United States, of Xantic BV of The Netherlands. Further consolidation among Inmarsat distributors is viewed as likely for 2006.