WASHINGTON — EchoStar Corp. has canceled its proposed purchase of Mexican satellite fleet operator Satmex following the refusal of Satmex debt-holders — some of them “hell-bent on destruction,” in the words of an EchoStar official — to accept the transaction’s terms, EchoStar announced March 16.
The question now for Satmex, and to a lesser extent EchoStar, is what to do next. Satmex has three satellites — one healthy in orbit, a second that is generating revenue but will run out of fuel in less than three years and a third that is in inclined orbit, generating marginal sales. The same bondholders that scuttled the EchoStar purchase, which came with the guarantee of a new satellite, have refused to support Satmex’s previous attempts to purchase a spacecraft on its own.
EchoStar Satellite, which has been trying to develop a fixed satellite services business in the Americas, is now faced with the loss of a relatively straightforward path to growth that would give it heft in an industry where scale is an advantage.
Englewood, Colo.-based EchoStar had told investors in a March 1 conference call that it would not raise the price of its Satmex offer, and that some Satmex bondholders were resisting the transaction because it would pay less than par value for their Satmex debt.
These bondholders continued their resistance through the deal-acceptance deadline of midnight March 15 imposed by EchoStar. EchoStar said in a March 16 filing with the U.S. Securities and Exchange Commission (SEC) that the transaction had been terminated as a result.
EchoStar had offered to pay $267 million in cash for Satmex, plus whatever amount of the company’s current $107 million cash reserve remained after transaction-related expenses. In a March 1 filing with the SEC, Satmex said its current bonds have a combined principal of $424.5 million.
Anticipating the result, EchoStar Satellite President Dean Olmstead said here March 15 that he could not understand the motivations of the hold-out bondholders, who have blocked Satmex development since the Mexican operator went through Chapter 11 bankruptcy reorganization in the United States and Mexico in 2005.
Satmex owners subsequently tried to auction the company but scrapped the procedure when none of the bidders agreed to meet the minimum offer-price threshold.
Clearly frustrated with the situation, Olmstead said the Satmex creditors include a few hedge funds that, in looking at the EchoStar offer, had used “a purely financial set of metrics. It is hard to figure out what they are trying to achieve. They seem hell-bent on destruction, for both themselves and everyone else.”
Speaking at the Satellite 2010 conference here and in a brief interview, Olmstead said the value of some of Satmex’s debt had been bid up in recent weeks. “It’s curious behavior,” Olmstead said. “I don’t know who’s going to pay that.”
EchoStar Chairman Charlie Ergen, who is also chief executive of EchoStar’s principal customer, satellite-television provider Dish Network, had told investors that EchoStar would not pay “one cent more” for Satmex, and that the offer on the table was already at the upper end of EchoStar’s risk tolerance. But he also said that without some near-term acquisition that would permit EchoStar to get larger, the company would have to reconsider its place in the market.