After a Four-Year Wait, Eutelsat Successfully Goes Public

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Satellite-fleet operator Eutelsat Communications successfully completed its initial public offering (IPO) of stock Dec. 2, entering the Paris-based Euronext market five weeks after an initial attempt was withdrawn.

Eutelsat’s stock market listing occurred at 12 euros ($14) per share and raised 860 million euros, which the company will use to pay down its debt. The IPO sold a 34-percent stake in Eutelsat and gave the company a market capitalization of about 2.5 billion euros.

Shares dropped slightly in initial trading, closing at 11.94 euros, but Eutelsat Chief Executive Giuliano Berretta was not letting that spoil his day.

“I have been waiting to do this for four years,” Berretta said in an interview after the market closed Dec. 2. “But this is not good only for Eutelsat, it is good for the satellite sector. The sector needs liquidity and this will provide some of it.”

Formed as an intergovernmental cooperative, Eutelsat was privatized in 2001.

The money raised — less 34 million euros in financial advise rs’ and legal fees — will pay down Eutelsat’s debt. The Standard & Poor’s credit rating agency said that probably will lead to a higher Eutelsat debt rating, reducing the interest rate the company pays on its bank loans.

Eutelsat’s post-IPO debt is 3.9 times its earnings before interest, taxes, depreciation and amortization (EBITDA), a commonly used financial metric. Before the IPO, debt was 5.1 times EBITDA.

As part of the IPO, Eutelsat came to terms with the Italian owners of the Eutelsat-operated Atlantic Bird 1 satellite, which has suffered signal outages in the past but which Berretta says is now fully operational. Eutelsat paid 70 million euros for Atlantic Bird 1, thereby avoiding potential legal action resulting from its past refusal to pay transponder-rental fees.

Eutelsat operates 18 fully owned satellites, has partial ownership of five others, and has two direct-broadcast television spacecraft on order and set for launch in 2006. The company has solicited bids from manufacturers for two more satellites. One of these, called W2M, will be under contract by early 2006, Berretta said.

Eutelsat, one of the world’s five largest satellite operators in terms of revenue, joins competitor SES Global of Luxembourg on the Euronext exchange. The two companies are lumped together in the minds of some institutional investors despite the fact that Eutelsat is both a smaller company and is more heavily centered on video broadcasting in Europe.

Whereas Eutelsat is mainly European, SES Global, currently the world’s largest commercial satellite-fleet operator, has a major presence in North America through its SES Americom subsidiary and also is a shareholder in South American and East Asian satellite companies .

Eutelsat’s abortive IPO attempt in October was criticized both for its price — the company originally sought a listing at 15.25-17.75 euros — and for Eutelsat’s explanation of what management planned to do with its stock during the IPO.

Some analysts read Eutelsat’s plans as signaling a management sell-off of almost its entire stake. Eutelsat’s investment bankers said that was never the case, but they conceded that the complicated warrant-type instruments included in the IPO could have been better explained.

In the Dec. 2 IPO, Eutelsat managers agreed to sell none of their equity in the company unless there is an oversubscription in the IPO.

Berretta said the IPO was oversubscribed, but that the size of the oversubscription will not be known until late December.

Eutelsat managers will be selling no more than 16 percent of their equity in the company in the event the oversubscription — equivalent to 5.86 million shares — is fully sold. But company managers are expected to purchase warrants immediately after such a sale, reducing the net reduction in their stake in the company to 4.4 percent, Berretta said.

A warrant is a voucher that guarantees the holder the right to buy shares at a predetermined price, which typically is below the trading price.

Pierre Hudry, an analyst with Morgan Stanley, Eutelsat’s chief investment banker for the IPO, said Eutelsat management and the private-equity companies that own Eutelsat “are keeping a lot of skin in the game. This is a good sign for investors and it is one reason we withdrew the IPO in October. The markets were not good then and the question is: ‘Do you take your boat out in a hurricane?’ We decided to wait, knowing we could come back quickly.”