Inmarsat rejects second EchoStar merger proposal

by

WASHINGTON — U.S. fleet operator EchoStar on July 6 abandoned a $4.25 billion effort to buy Inmarsat after the British satellite operator rejected EchoStar’s second merger offer in less than a month.

Colorado-based EchoStar informed Inmarsat July 6 that it would not make another offer for the company, having revealed interest June 8 and again with another bid July 3, only to be rejected both times.

As with the first offer, the value of which was not disclosed, Inmarsat said EchoStar “very significantly undervalued Inmarsat and its standalone prospects.”

“The Board remains highly confident in the independent strategy and prospects of Inmarsat,” the company said in a July 6 statement.

EchoStar had until 12 p.m. Eastern (5:00 p.m. in London) Friday to make a firm offer or give up for now. British rules require EchoStar to wait at least six months before making another bid for Inmarsat.

Inmarsat operates a fleet of 13 satellites, providing L-band communications for maritime and aviation safety services and high-throughput Ka-band communications for broadband internet access.

EchoStar operates 18 satellites, and has roughly $3.3 billion in cash, making it one of the satellite operators most capable of merger and acquisition activity.

Spectrum Suspicions

Analysts have highlighted Inmarsat’s spectrum resources as the primary motivation for EchoStar’s bid, noting an absence of major synergies between the two companies that would normally motivate a merger.

“This is about a bigger game that Charlie Ergen is playing around spectrum,” Giles Thorne, an equity analyst at New York-based Jeffries Group, told SpaceNews.

Ergen chairs Dish Network and EchoStar and has amassed multiple swaths of spectrum in the United States. Inmarsat has a spectrum cooperation agreement with Ligado, formerly LightSquared, linking their L-band frequencies in a way that could be alluring to Ergen in order to protect the value of Dish’s frequencies.

Chris Quilty of Quilty Analytics made a similar prognosis, saying Inmarsat’s L-band spectrum is “undoubtedly the crown jewel being pursued by Charlie Ergen.”

Quilty traced the sinuous path between Dish, EchoStar, Inmarsat and Ligado in a July 2 research note:

“Inmarsat possesses a significant quantity of L-band spectrum, which could be extremely
valuable to Charlie Ergen, given his former ownership of wireless operator Ligado’s debt. Ligado, which holds a contract to use Inmarsat’s terrestrial U.S. L-band spectrum, previously fended off Ergen’s attempts to seize their spectrum rights in bankruptcy court. An acquisition of Inmarsat would give Ergen control over the spectrum, potentially shielding his other company, DISH Network, from the threat posed by the dumping of a large quantity of L-band spectrum into the U.S. marketplace.”

Without spectrum as a motivation, Thorne said there is little logic in combining the business of EchoStar and Inmarsat. Although both companies have Ka-band and S-band businesses, they have very little overlap in terms of products and customers, he said.

“Normally when you’re doing an M&A, you want one plus one to equal three, either by having revenue synergies around pricing or eliminating duplicate costs, or having more negotiating leverage around capital expenditure,” he said. “In the case of Inmarsat and EchoStar, the only synergy you would have is around capex.”

It is unlikely, according to Quilty, that other satellite operators will swoop in and create rival bids for Inmarsat. “We’re at a loss to identify any obvious other players with motivation to bid aggressively,” he wrote.

In between EchoStar’s two offers, French fleet operator Eutelsat admitted it was mulling a bid for Inmarsat, but said within 24 hours of that admission that it would not make an offer.

Most other prospective bidders are unlikely to find similar value in Inmarsat, and many are heavily invested in spending on their own next-generation satellite systems, Quilty wrote.