Deal with SES To Put Several Satellites in GE’s Possession

PARIS — G E Capital’s decision to sell its 19.5 percent stake in satellite-fleet operator SES Global in exchange for a package that is 47.5 percent cash and the rest in SES-held satellite assets raises questions about whether GE Capital intends to return to the satellite telecommunications business after a six-year absence as a satellite operator, industry officials said.

The agreement, announced Feb. 14, calls for GE Capital to receive SES Global’s 19.99 percent ownership of fleet operator Star One of Brazil and 34 percent share of AsiaSat of Hong Kong. GE also is taking ownership of the orbiting AMC-23 telecommunications satellite over the Pacific Ocean, plus the Satlynx two-way enterprise broadband communications business and SES’s 5.5 percent stake in Orbcomm, the provider of global satellite-messaging services.

These assets, valued at 650 million euros ($846 million), along with 588 million euros in cash, will be placed into a new GE Capital-owned company called SES International Holdings Inc.

The announcement of the deal boosted SES Global’s stock on the Paris-based Euronext exchange, which SES Chairman Romain Bausch and Chief Financial Officer Mark Rigolle said was one of the intended effects.

GE’s continued shareholding has been a drag on SES Global’s stock since GE Capital announced in March 2006 its intention to sell the shares to concentrate on core businesses.

Bausch said he expects the sale to win approval from U.S. and Luxembourg tax and regulatory authorities within two or three months. Once approved, the agreement will put an end to the six-year association of GE Capital and SES Global that began when GE Capital sold its U.S. satellite fleet, now called SES Americom, to SES in 2001.

In a Feb. 14 conference call, Bausch and Rigolle said the transaction makes sense from just about every possible angle despite the expected legal and other transaction costs estimated at 4 million euros.

Rigolle said it will increase SES’s debt, but this has been the under-leveraged company’s goal in any event and will not threaten SES Global’s investment-grade credit rating.

SES Global will be canceling the GE shares once the transfer is complete, increasing the company’s public float and creating an automatic 13 percent increase in per-share earnings, Rigolle said.

As for the assets being sold, Bausch said SES Global’s March 2006 purchase of the five satellites owned by New Skies Satellites, now renamed SES New Skies, gave the company redundant capacity over Asia and South America that prompted the divestiture of AsiaSat and Star One.

The AMC-23 satellite, launched in December 2005, has at least 14 years of life remaining. But it occupies a Pacific Ocean slot, 172 degrees east, whose value plummeted in 2006 when anchor customer Boeing closed its fledgling Connexion business to provide high-speed Internet services to commercial aircraft. Bausch declined to disclose the fill rate of the satellite, which carries 18 C- and 20 Ku-band transponders.

Bausch said the company’s 34 percent share in Hong Kong-based Asiasat and 19.99 percent share in Star One of Brazil had been insufficient to give SES Global full freedom of movement in these regions.

Bausch said the transaction does not include a non-compete agreement or any other constraints on how GE eventually uses the shareholdings it will receive. SES Global, he said, is under no obligation to continue leasing capacity on the AMC-23 satellite through its Americom Government Services division. Similarly, GE is free to move or sell the satellite as it sees fit.

GE Capital’s purchase of shares in Ft. Lee, N.J.-based Orbcomm, which completed an initial stock offering in November, is consistent with other GE divisions’ interest in Orbcomm. In October, GE Asset Intelligence LLC signed a contract for delivery of up to 412,000 Orbcomm subscriber terminals.

Bausch said GE Capital also could be a good fit for Satlynx, a small but profitable division that is focused on high-speed two-way communications for businesses.

The purchase of minority stakes in Star One, majority owned by Embratel of Brazil; and AsiaSat of Hong Kong is more difficult to read. Both companies are operating in regions beset by overcapacity that shows little sign of easing in the near future.

GE Capital spokesman Ned Reynolds said Feb. 15: “In deference to the other parties involved, we do not plan to comment at this time beyond what they have put in the public record.”