— Harbinger Capital Partners, a hedge fund that already is the largest shareholder in mobile satellite service operators Inmarsat and Mobile Satellite Ventures (MSV), will attempt to merge those companies via a purchase that would be made through MSV owner SkyTerra Communications Inc. if regulatory approval seems likely, Harbinger and SkyTerra announced July 25.
The announcement came four days after Harbinger said it had broken off talks with London-based Inmarsat over a buyout, arguing that there was no sense in pursuing the deal in detail until the 12- to 18- month regulatory review was completed.
Birmingham, Ala.-based Harbinger and SkyTerra of Reston, Va., now will begin seeking approvals from and European regulators after having agreed on the form an Inmarsat buyout would take.
Harbinger and SkyTerra also announced that Harbinger, which is already a 48.4 percent shareholder of SkyTerra and thus MSV, would be investing another $500 million in SkyTerra. The investment, to be made in four tranches starting in January, provides a financial lifeline to SkyTerra, whose MSV program includes two large satellites under construction and a host of other investments needed to introduce its mobile satellite services in 2010.
The debt financing carries a 16 percent annual interest payment and includes rights for Harbinger to purchase SkyTerra stock at a price that some SkyTerra investors questioned during a July 25 conference call. These investors expressed concern that SkyTerra was offering Harbinger a large slice of SkyTerra equity at distress-sale prices.
SkyTerra Chief Financial Officer Scott G. Macleod defended the terms of the deal, saying that until the first Harbinger-paid tranche arrives in January, SkyTerra is allowed to seek financing on better terms.
Macleod said the warrants included in the Harbinger financing, which permit the hedge fund to purchase SkyTerra stock, offer Harbinger terms that “are better than I would like to have offered.” But he challenged SkyTerra’s other investors to find more favorable terms in today’s challenging debt market.
“Harbinger has given us the right to find an alternative before January Macleod said. “We are open for business. Let’s do a better financing if we can find it.” The deal- cancellation fee that SkyTerra would pay to Harbinger if a better deal is found is negligible, Macleod said.
SkyTerra has contracted with Boeing Satellite Systems International of El Segundo, Calif., to build two large mobile communications satellites serving the United States and under licenses issued by both countries. With money running short, SkyTerra recently renegotiated its payment terms with Boeing, permitting SkyTerra to stretch out its payments.
SkyTerra Chief Executive Alexander H. Good said during the conference call that with the fresh cash now coming from Harbinger, SkyTerra and MSV now have sufficient resources to carry out their business plan through September 2010. By then, the company’s first satellite should have been completed and launched into orbit with full insurance. The second satellite will have been completed but not yet launched or insured.
Good said an Inmarsat purchase by Harbinger would provide a large swath of L-band spectrum over North America and permit the combined company to offer a greater array of high-speed, two-way data and video communications services to private and government customers.
Jennifer Manner, SkyTerra’s vice president for regulatory affairs, said in a July 25 interview that SkyTerra’s initial look at a possible Inmarsat– MSV merger has turned up no special obstacles that would threaten its approval.
Inmarsat issued a statement July 25 saying its board of directors “remains highly confident in Inmarsat’s stand-alone prospects. However, the board intends to maintain a constructive relationship with Harbinger and SkyTerra throughout the regulatory review process.”
Harbinger owns 28.8 percent of Inmarsat. In a July 25 filing to the U.S. Securities and Exchange Commission, SkyTerra said that if a successful Inmarsat takeover by SkyTerra is achieved, Harbinger would expect to own 85 percent of the combined company.
Inmarsat is the oldest mobile satellite services company and profitably operates a fleet of satellites. The third and last of its fourth-generation spacecraft is scheduled for launch in mid-August.