Satellite Operators Expect More Consolidation – At Least One Thinks Eutelsat Could Be Next Target

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The next big financial deal in the commercial satellite industry could be an attempted takeover of satellite-fleet operator Eutelsat S.A. by the merged Intelsat and PanAmSat, SES Global Chairman Romain Bausch said.

Bausch said a deal of that size would not surprise him once the Intelsat purchase of PanAmSat is completed and Paris-based Eutelsat has completed its initial public offering of stock.

Eutelsat submitted a prospectus to French stock-market regulators Sept. 7 in preparation for its planned stock-market introduction on the Paris-based Euronext exchange. SES Global also trades on the Euronext.

Speaking with journalists Sept. 6, Bausch said a purchase of Eutelsat by the merged Intelsat-PanAmSat company likely would face less opposition now than Intelsat’s attempted purchase of Eutelsat in 2002-2003. That deal also faced opposition from Eutelsat.

Since then, Eutelsat’s ownership has evolved to where it is now fully controlled by private-equity companies led by Eurazeo of Paris.

Bausch’s comments reflected the generally muted reaction of PanAmSat and Intelsat competitors to the two companies’ planned $3.2 billion merger. Satellite-fleet operators said they expected no major regulatory obstacles to the deal in the United States or anywhere else.

An Intelsat takeover of Wilton, Conn.-based PanAmSat would create the world’s largest commercial satellite-fleet operator, surpassing current leader SES Global.

Many of the largest satellite-fleet operators attending the Sept. 5-7 World Satellite Finance conference organized by Euroconsult all but shrugged their shoulders at the Intelsat-PanAmSat merger. Here is a sampling of their reaction:

– Daniel S. Goldberg, chief executive, New Skies Satellites of The Hague, Netherlands: “I have no doubt that there will be a very comprehensive, searching review that the regulators on both sides of the Atlantic will give the deal. There will be a full review, and I have no doubt that the regulators will contact some of the other operators for our opinions. We will wait for that to happen.”

New Skies, which was once part of Bermuda-headquartered, Washington-based Intelsat, won permission from the U.S. government earlier this year for New Skies and Intelsat to consider a repurchase agreement. A repurchase had been barred by U.S. law. New Skies, which completed a successful stock offering earlier this year, is majority-owned by private-equity investor Blackstone Group.

– Patrick Brant, president , Loral Skynet: “I don’t see that bigger is necessarily better. This remains a regional business. But consolidation of fleets perhaps is going to help on [transponder] prices.”

New York-based Loral operates four telecommunications satellites and in early 2004 sold its Atlantic fleet to Intelsat as part of Loral’s attempt to redress its financial situation and exit from Chapter 11 bankruptcy proceedings. Brant said Loral will exit bankruptcy by the end of the year. Brant said Loral Skynet has been able to increase its satellites’ fill rate to 72 percent from 61 percent a year ago.

– Bausch : “We expect not only the [European] Commission to ask us for our opinion of the transaction, but also other regulators on other continents.” Bausch said that if U.S. regulators forced Intelsat to divest itself of the four satellites it purchased from Loral in 2004, SES might be interested in buying one, or possibly two, of them, but not the whole set.

– Giuliano Berretta, chief executive, Eutelsat S.A.: “The concentration [Intelsat and PanAmSat] have is more on the American continent than in Europe. We are less affected. With this fusion, [transponder pricing worldwide] might be likely to go up a little bit. That would benefit everybody. There’s been too much tendency to push prices down.”

During a panel discussion with other operators, including Intelsat’s new chief executive, Dave McGlade, Berretta said it has been Intelsat — not just small, struggling satellite operators — that has dropped prices below cost in the past couple of years.

“You’re not guilty of course, Dave, because you just came in. But your predecessor was doing some of this at Intelsat. When you’re a leader and you reduce prices, you hurt yourself.”

– Joe Wright, chief executive, PanAmSat Holding: “We have not had a stable home — not only for our customers and employees, but also for our investors. At one time we were a part of Hughes, a satellite manufacturer. Then we were going in with EchoStar. Then we were going to be going in with News Corp. Then we were over there with KKR [one of PanAmSat’s private-equity owners]. And now, finally, we’ve found a home. These two companies could not be better suited.”