Public, Private Investors Take Large Stakes in Eutelsat

PARIS — The French state-owned savings institution that is purchasing a large stake in satellite-fleet operator Eutelsat said it is acting as a long-term investor seeking stable cash flows and not as a proxy for the French government.

The Caisse des Depots (CDC) also said it is not interested in taking control of Eutelsat.

CDC spokesman Philippe Puyau said Dec. 7 that the organization, which reports to the French parliament, not the government administration, has an established record of purchasing non-controlling interest in companies with growing revenue streams. He said CDC investments are made on their merits and not as part of a French government strategy.

“This is not a case of economic patriotism,” Puyau said, referring to the current French government policy of arranging private-sector financial transactions to keep out non-French investors. “We have our own consultative committee made up of independent directors, and by French law we are protected from certain [government] pressures and solicitations.”

The Paris-based CDC’s Dec. 7 announcement that it is buying the 25.5 percent stake in Eutelsat held by the Eurazeo investment company came just two days after Spain’s Abertis industrial conglomerate agreed to purchase 32 percent of Eutelsat from three private-equity groups.

Eutelsat Chief Executive Giuliano Berretta said in a Dec. 7 statement that the back-to-back deals signal “the end of the reorganization of the capital of our group.” Like Abertis, CDC is purchasing a large enough stake in Eutelsat to be able to consolidate the shareholding in its financial statements, but not large enough to give it operational control of Eutelsat.

Eutelsat shares, traded on the Paris-based Euronext exchange, fell on the news. Investors who had bid up the stock in recent months hoping for a generous offer from a buyer seeking control of Eutelsat concluded that such a transaction is now unlikely.

CDC is paying 15.70 euros per Eutelsat share, giving the deal a total value of 862.7 million euros ($1.15 billion). When added to CDC’s existing Eutelsat ownership, the savings institution will have a total stake in Eutelsat of 26.15 percent.

The Abertis and CDC transactions both must clear regulatory review. Once they are effective, Eutelsat will be owned 32 percent by Abertis, 26.15 percent by CDC, and 7 percent by various telecommunications companies and Eutelsat employees. The rest is publicly traded.

With its private-equity owners getting restless and no anchor shareholder present, Eutelsat was facing the possibility of a buyout by a financial or a strategic investor. Eutelsat’s principal European competitor, SES Global of Luxembourg, had speculated that Eutelsat would be purchased outright within a year.

In a Dec. 5 conference call, officials from Barcelona-based Abertis said they have no intention of bidding for full control of Eutelsat.

Carlos Sagasta, director of finance, planning and control at Abertis telecom, said Abertis had “no serious discussions” with Eurazeo about taking over that company’s stake. He said Abertis had no competitors in negotiating the purchase from the private-equity companies.

The Abertis purchase, to be financed by debt, is valued at 1.07 billion euros , or 15.50 euros per share. Abertis officials said they hoped the deal would spur closer links between Eutelsat and Spain’s Hispasat satellite operator. Eutelsat owns 28 percent of Hispasat, and Abertis is Hispasat’s second-largest customer for television broadcast capacity.

Puyau said the fact that CDC’s 15.70-euro price is not significantly higher than the Abertis price may be explained by the simplicity of the CDC-Eurazeo transaction.

“We are buying our stake in one bloc, whereas Abertis’ purchase was conducted with three other shareholders,” Puyau said Dec. 7. “We are talking about a 1.3 percent price difference. This is not significant.”

Abertis is purchasing the Eutelsat stakes held by private-equity investors Texas Pacific Group and Spectrum Equity investors, Texas Pacific Group, Cinven and affiliates of Goldman Sachs. In a separate but related transaction, Lehman Brothers International (Europe) is purchasing a 2 percent stake in Eutelsat, also for 15.50 per share, from this same group of private-equity shareholders. The move made it easier for Abertis to conclude its purchase and remain under the 33 percent threshold for management control, which would have triggered an investigation by French stock-market authorities.

The Abertis deal is valued at 9.1 times the ratio of Eutelsat’s enterprise value to its EBITDA, or earnings before interest, taxes, depreciation and amortization. Enterprise value is a measure of what the market believes a company’s operations are worth. Officials from Abertis said in a Dec. 5 conference call that this ratio compares favorably with two recent satellite-telecommunications transactions.

They also said Eutelsat has the satellite industry’s highest gross margins. Adding a Eutelsat stake to Abertis Telecom will result in synergies that they declined to quantify. The transaction, which must be approved by European regulators, is expected to close within 60 days, Sagasta said.