Canadian Ownership Rules Limit Telesat’s Sale Options

PARIS — SES Global has evaluated a possible purchase of rival satellite-fleet operator Telesat Canada but is not actively pursuing a bid, SES Global Chairman Romain Bausch said Nov. 6.

Bausch said SES, which recently issued bonds worth a total of 800 million euros ($1.02 billion), is not preparing any specific acquisition but has talked to investment banking representatives of Telesat owner BCE Inc. of Montreal regarding the sale.

BCE intends to sell up to 49 percent of Telesat through a stock offering of non-voting shares scheduled for the coming weeks. The company also is entertaining bids from strategic or financial investors who presumably would purchase Telesat outright.

Canadian regulations require that Telesat stay majority Canadian-owned, raising questions about whether prospective competitors — Intelsat of Washington, Eutelsat of Paris and SES Global of Luxembourg — would be eligible suitors.

In a Nov. 1 conference call on BCE’s financial results, Chief Executive Michael J. Sabia said the planned stock offering for Telesat is moving forward. But Sabia also said publicly, for the first time since the Telesat sale was announced, that the company is receiving offers from other satellite operators and financial investors.

“There is a considerable interest among both strategic and financial sponsors for that asset,” Sabia said of Telesat. “We are in discussions with a number of them. So we have some pretty interesting options with respect to Telesat.”

In a Nov. 6 conference call, Bausch confirmed that SES Global is among those who have made inquiries about Telesat. But he said SES-backed Ciel Satellite of Ottawa, plus SES’s Americom subsidiary in the United States, already give the company a firm foothold in North America and Canada.

Bausch also said the Canadian government’s intention to license up to 29 orbital positions — bids are due Nov. 15 — has played a role in SES Global’s decision not to go all out for Telesat.

As a Canadian company, Ciel will be permitted to operate satellites from any of these slots it secures through the Canadian licensing process. In return, it will be obligated to fill the slots with spacecraft by an agreed-to deadline to prevent Canada from losing its rights to the positions. While some of these satellites might be provided from SES Global’s existing fleet, or the fleet of partners such as EchoStar Communications Corp., eventually a capital investment in new satellites will be necessary.

“That is also impacting the way we participate in opportunities when it comes to acquisitions,” Bausch said of the coming Canadian orbital-slot licensing process. “We are probably not the most aggressive when pursuing such a target” as Telesat. “We have a clear strategy in the Canadian market.”

Bausch said SES is “one of a couple” of satellite-fleet operators that have expressed an interest in Telesat. Without naming them, Bausch said other companies should have a much greater interest than SES Global in acquiring the Canadian company.

“There are definitely competitors of ours that should be more interested, and I would expect others to be more aggressive,” Bausch said of the bidding for Telesat.

Dianne Van Beber, Intelsat vice president for investor relations, declined to comment on whether Intelsat is considering a Telesat bid. “As one of the largest satellite operators, we often have ideas brought to our attention,” Van Beber said Nov. 7. “We look at opportunities from time to time, but it is not our policy to comment on them.” Vanessa O’Connor, spokeswoman for Eutelsat, also declined comment on Telesat Nov. 7.

One industry official said it would be relatively easy for a private-equity investor based outside Canada to pursue Telesat through a Canadian entity. Investors of this type have purchased several satellite operators in recent years.

SES Global reported Nov. 6 that its revenues for the three months ending Sept. 30 grew 7.6 percent, to 984 million euros, not including the effects of its acquisitions of rival New Skies, now called SES New Skies, and of satellite ground system builder ND Satcom of Germany.

SES Global Chief Financial Officer Mark Rigolle said the company predicts revenues in 2007 will grow by about 8 percent compared to 2006.

SES Global in the past three years has acquired companies, including ND Satcom and satellite teleport operator Verestar of the United States, whose business models are not the same as the company’s main focus of leasing capacity aboard its own satellites.

These services businesses have much lower gross-profit margins than SES Global’s heritage satellite infrastructure operations and have dragged down the company’s margins. An SES Global priority has been to bring these operations’ gross margins, or earnings before interest, depreciation and amortization (EBITDA), up to at least 10 percent. SES Global’s satellite infrastructure business regularly posted margins of 78 percent for the three months ending Sept. 30.

Rigolle said the services businesses for the first time reached the 10 percent target. He said margins might go higher next year as SES Global sells off teleports that have been made redundant following its acquisitions, and as ND Satcom’s business grows.