Intelsat Execs Cast Disappointing IPO Results in a Positive Light
PARIS —Chief Executive David McGlade said he is “extremely pleased” with the company’s initial stock offering given the markets’ recent volatility, saying Intelsat succeeded in placing about 25 percent of the company’s equity value, which is about average for recent stock-market introductions.
In an interview, McGlade and Intelsat Chief Financial Officer Michael McDonnell said the company knew going into the April 17 IPO that the markets were more nervous — about terrorism concerns in the United States and slowing growth of the Chinese economy — than is ideal for a new stock issue.
“In light of everything the market has been through this week, we’re extremely pleased” with the result, McGlade said. Intelsat had hoped to sell 21.7 million common shares at an average price of $23 per share. In the event, it was forced to reduce the IPO price to $18 per common share and sold 19.32 million shares.
When the preferred shares are added into the mix, Intelsat expects to net about $472 million after underwriter expenses and other IPO-related costs. The money will be used to pay down Intelsat’s sizeable debt, which had undoubtedly kept some prospective investors on the sidelines.
McGlade and McDonnell sought to portray Luxembourg- and Washington-based Intelsat has a company that will be deleveraging quickly as it refinances its existing debt in a low-interest-rate environment, applies the IPO proceeds to reduce debt and collects some $500 million in insurance proceeds from the loss of one satellite and the partial failure of another.
McDonnell said these actions, coupled with measures already taken, will cut some $300 million from Intelsat’s annual interest payments, which had been around $1.25 billion.
McGlade said the reaction of institutional investors in the United States and Europe in the run-up to the IPO was positive. He said he was surprised by how much these investors already knew about Intelsat’s business model and the fixed satellite services business in general.
Intelsat has long had publicly traded bonds, giving a part of the investor community a clear view of what the world’s largest commercial satellite operator does for a living, its $10.7 billion backlog and the fact that it is entering a period of substantially lower capital investment.
McGlade said the lower-than-expected IPO price should be viewed as a minor inconvenience, and that Intelsat’s value would be clearer to investors now that the company gets increased exposure through public trading on the New York Stock Exchange.
Intelsat’s two biggest competitors,of Luxembourg and of Paris, are both publicly traded. Both offer shareholders hefty dividends, which is something Intelsat will not be doing for now as it focuses on deleveraging.
McGlade reiterated that Intelsat’s current owners, private equity investors BC Partners and Silver Lake, will not be pocketing any of the IPO proceeds, nor will Intelsat management.
“There is no payday for anybody until we start generating growth in equity,” McGlade said, adding that management has agreed to a 180-day lockup period during which it cannot sell its shares.