New Skies Initial Stock Price Lower Than First Hoped

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The May 10 stock introduction by New Skies Satellites brought in much less cash than planned, but did achieve its goal of giving the satellite-fleet operator a tradable security with which to sell itself to a larger satellite operator or buy a smaller one.

The most obvious linkup is with Intelsat Ltd., which created New Skies in a 1998 spinoff as a precondition of Intelsat’s eventual privatization.

Intelsat and New Skies have lobbied the U.S. Congress in recent weeks to remove a regulatory obstacle that would prevent Intelsat and New Skies from merging for 12 years. The U.S. Senate agreed May 5 to modify U.S. law to permit a New Skies-Intelsat merger, and the matter is now in discussion in the U.S. House of Representatives.

Intelsat Chief Executive Officer David McGlade said May 12 that Intelsat’s motivation is only to be granted the same freedom of movement its competitors enjoy. “We think it’s a good opportunity to level the playing field for us if we decided it’s appropriate,” McGlade said in a conference call on Intelsat’s first-quarter 2005 financial results. “We’re not actively doing that [preparing a purchase of New Skies] at this time.”

The Hague, Netherlands-based New Skies provides telecommunications services in most regions of the world with a fleet of just four satellites, with a fifth scheduled to be launched in 2006.

Owned by leveraged-buyout specialist Blackstone Group, New Skies had hoped to sell 11.9 million shares on the New York Stock Exchange at a price of $18 to $20 per share. But as was the case with satellite-fleet operator PanAmSat Corp. of Wilton, Conn., in March, New Skies was forced to cut its initial share price at the last minute.

The company’s stock began trading May 10 with a listing at $16.50 per share, netting $180.5 million after underwriter discounts and expenses. New Skies has guaranteed its shareholders it will offer a quarterly dividend for the next 12 months that will total $1.85 per share, or an 11.2 percent dividend rate.

New Skies’ stock closed May 12 trading at a price of $17.10 per share.

PanAmSat’s stock has remained near its initial trade price of $18 since its introduction in March.

New Skies Chief Executive Officer Daniel S. Goldberg says the company has sufficient resources, despite its debt, to be a buyer in an industry in which consolidation is necessary.

“As the smallest of the global operators, one of our objectives is to pursue a strategic combination or joint venture with another operator,” Goldberg told the House Telecommunications and Internet Subcommittee April 14. “Intelsat is one of a number of entities with whom it would be logical for us to consider such a transaction.”

Industry officials say PanAmSat would be another likely strategic partner for New Skies, even if that combination might require the merged company to sell off capacity in regions in which New Skies and PanAmSat are now dominant competitors.

The prospect of a New Skies linkup with Intelsat or PanAmSat does not worry satellite-fleet owner SES Global. SES Chairman Romain Bausch said he expects New Skies to end up being owned by one of those companies but that, with the exception of PanAmSat’s U.S. video business, none of the three competitors threatens SES Global in its core video-distribution markets.

“New Skies, Intelsat and PanAmSat are mainly active in telecommunications broadcasting,” Bausch said May 9 during a conference call. “Only a small part of their revenues are from video. [A merger] is not really raising concerns with us.”

Bausch said SES Global and other operators are feeling the effects of the private-equity ownership of New Skies, Intelsat and PanAmSat outside SES’ core markets, in Asia and Latin America, where Bausch said the competition is offering satellite capacity “at extremely aggressive rates.”

In the company’s March 13 conference call, Intelsat officials declined to detail pricing trends and also declined to list the fill rate of their satellite fleet.

Bermuda-headquartered, Washington-based Intelsat reported a net loss of $151.7 million on revenues of $293.2 million for the three months ending March 31. Chief Financial Officer William Atkins said the company “performed solidly” given the fact it lost one and one-half satellites to sudden in-orbit failures since November.

In addition to a $69.2 million impairment charge following the total loss of the Intelsat 804 satellite, Intelsat recorded a $59.7 million charge associated with its acquisition by leveraged-buyout companies.

Ramu Potarazu, the company’s chief operating officer, said Intelsat’s backlog was $3.8 billion as of March 31, down $200 million from the previous quarter three months earlier. The difference was due in part, he said, to the Intelsat 804 loss.

Potarazu said Intelsat has preserved 60 percent of the backlog on the 804 satellite by shifting customers to other Intelsat satellites, and to a New Skies satellite following an agreement on capacity-sharing the two companies reached early this year.

Intelsat reported total debt of $4.8 billion as of March 31, and a cash balance of $300 million.