Inmarsat Negotiating Purchase Of Satellite Services Company

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PARIS — Mobile satellite services operator Inmarsat has opened negotiations with an unnamed satellite services provider on acquiring the company in a purchase that would cost less than $150 million and bring $50 million in annual revenue, Inmarsat said.

London-based Inmarsat said the acquisition target generated more than $50 million in revenue in 2008, is currently profitable and “will have no material indebtedness at closing.” The negotiations were disclosed in a Nov. 9 Inmarsat submission to the U.S. Securities and Exchange Commission (SEC).

Inmarsat has long said that, unlike other mobile satellite operators, it has no big investments that it needs to make to deliver on its core services. Its three Inmarsat 4 satellites are in orbit and, earlier this year, were repositioned to maximize global coverage.

The company’s purchase of mobile satellite services distributor Stratos Global of Bethesda, Md., has been completed, and its investment in a handheld satellite telephone service is not a drain on its current cash flow.

Inmarsat on Nov. 9 reported that revenue for the three months ending Sept. 30 was $176.7 million, up 8.7 percent over the previous year. After accounting for differences in how Inmarsat discounts its services to its distributors — the discount policy changed in Inmarsat’s favor in April — the revenue growth was 7 percent for the three months ending Sept. 30. That is a lower rate of growth than earlier in the year, but Inmarsat Chief Financial Officer Rick Medlock said the company is maintaining its full-year forecast that revenue will increase by 6 percent to 8 percent in 2009 compared with 2008.

Free cash flow for the third quarter was up 90.6 percent, to $102.9 million, and the company’s earnings before interest, taxes, depreciation and amortization was 75 percent of its revenue. The company said that in addition to its long-anticipated decline in capital spending, it has also reduced its operating costs by some 13 percent this year.

Medlock said that as of Sept. 30, Inmarsat had more than $300 million in cash or cash equivalents and expects that capital spending for the full year — much of it on the AlphaSat satellite now in construction — will not exceed $160 million.

Inmarsat Chief Executive Andrew Sukawaty said the company is weighing whether to introduce regional pricing schemes, lowering Inmarsat mobile per-minute charges in regions of low land-mobile demand and raising charges where demand is strongest.

For the moment, Inmarsat practices near-uniform pricing worldwide, except for a discount for land-mobile users in China.

Sukawaty said that the three Inmarsat 4 satellites are unlikely to face traffic congestion problems anytime soon, and that the older Inmarsat 3 satellites continue to carry substantial traffic. Nonetheless, he said, that the company is considering regional pricing schemes. “That is something we have not done. That is something we are considering,” Sukawaty said.

Inmarsat and Solaris Mobile of Ireland have both won European Commission licenses to offer S-band mobile satellite services throughout the 27-nation European Union. But Sukawaty, as he has in the past, said Inmarsat has not begun any substantial investment in its planned EuropaSat S-band spacecraft because of continuing doubts about the European regulatory environment.

For Inmarsat, the current S-band regulatory environment has two issues, Sukawaty said. The first is that ICO Global Communications of Reston, Va., which was refused a European license, has appealed the decision to the European Court of First Instance. Sukawaty said Inmarsat is concerned about the effect the ICO lawsuit may have on potential co-investors in any Inmarsat S-band project.

The second problem, he said, is that while the European Commission has granted its licenses, no individual European nation has granted an S-band license for mobile satellite services. “Once one or two are granted, we expect a cascade effect,” Sukawaty said. “But it remains to be seen when that will be.”