Harbinger Mum about Its Plans for Inmarsat and MSV

PARIS
— The two large satellites being built for Mobile Satellite Ventures (MSV) to provide mobile voice and data communications in
North America
cannot be used for any other purpose regardless of whether MSV ends up merged with London-based Inmarsat, MSV Senior Vice President John Mattingly said.

In Sept.11 remarks during World Satellite Business Week organized by Euroconsult, Mattingly sought to explain why MSV’s principal owner, Harbinger Capital, is neither willing nor obliged to disclose details of its move toward merging MSV with Inmarsat.

Harbinger, a Birmingham, Ala.-based hedge fund, owns substantial stakes of Inmarsat, MSV and TerreStar Corp., which like MSV is based in
Reston
,
Va.
, and is building two large mobile communications satellites.

MSV is using the L-band portion of the radio spectrum, which also is used by Inmarsat, an established and profitable mobile satellite services provider. TerreStar’s two-satellite system, which is under construction, will use S-band.

Harbinger and Inmarsat announced in July that they are prepared to study a possible merger of Inmarsat with MSV, whose stock trades under the name SkyTerra, once
U.S.
regulatory approval is assured.

Mattingly said the U.S. Federal Communications Commission, the U.S. Justice Department and the interagency U.S. Committee on Foreign Investment in the United States (CFIUS) all are reviewing a possible MSV-Inmarsat merger in a process likely to take at least 12 months. CFIUS is involved because Harbinger’s financial backing includes non-U.S. sources of capital.

Once the
U.S.
regulatory approvals are within sight, Harbinger and Inmarsat may elect to enter the due-diligence procedure that could end in an acquisition of Inmarsat by Harbinger-backed SkyTerra – assuming British regulators approve it, he said.

Mattingly also said the documentation Harbinger and SkyTerra are submitting to
U.S.
regulators will be devoid of any hint of Harbinger’s mobile satellite strategy. Harbinger officials have declined to say what they have in mind for the sector. However, Mattingly said one theoretical option – that the MSV satellites be repurposed by a company that also would include Inmarsat’s satellites – is not being considered.

“MSV is a land-mobile system for
North America
,” Mattingly said of the MSV spacecraft under construction by Boeing Satellite Systems International. “It is locked down for that purpose. It is not interchangeable with Inmarsat in any way. It’s going to operate in
North America
. There isn’t any fungibility between Inmarsat’s satellites and our own.”

Mattingly conceded that the procedure – get
U.S.
regulatory clearance, then negotiate a deal with Inmarsat under British takeover rules – might appear backward. “You’re going to have to bear with us,” he said. “There is no due-diligence process here.”

In the absence of a declaration of intentions by Harbinger, investment bankers stepped in to offer their own analysis.

David Zwick, managing director of Barclays Capital, said Harbinger appears to want to protect its earlier, massive investment in MSV and TerreStar by grabbing hold of the only mobile satellite services provider with a track record of profitability – Inmarsat.

Jim McCummings, a managing director of Citigroup, said Harbinger “has taken a fundamental view of asset value” as it applies to the mobile satellite sector, especially given the potential of hybrid mobile services that use a combination of satellites and ground networks of signal boosters called Ancillary Terrestrial Components. “They are creating options for themselves,” McCummings said of Harbinger’s Inmarsat move.

Tracy Mehr, managing director of Credit Suisse, said Harbinger may view Inmarsat as a source of cash to help fund MSV or TerreStar, both of which will need financial backing before becoming cash-flow positive with their new satellite ventures.

Mattingly said Harbinger’s decision in July to provide $500 million in additional financing through 2010, combined with Boeing’s agreement to defer payments on the MSV-2 satellite, provides MSV with sufficient cash to carry the company through the launch of its first satellite in 2009 or early 2010, and including the completion of construction of the MSV-2 satellite but not including its launch.