Satellite industry consolidation
It’s not a done deal, but Bermuda-based satellite company Intelsat is in close talks to acquire rival New Skies Satellite Holdings for approximately $1.3 billion. It’s an interesting deal, where both companies are controlled by private equity firms.
Intelsat, which started life as a international government agency, went private in 2001 and is now owned by a consortium of equity firms: Apax Partners, Apollo Management, Madison Dearborn Partners, and Permir. Defense giant Lockheed Martin sold the company its satellite interests in 2004. Blackstone Group, the owner of Dutch-based New Skies, has owned that property for only nine months ago for $1 billion and stands to make a real killing on the deal.
According to a Wall Street Journal article ("Intelsat May Pull Rival Into Its Orbit", 8/19/05), the move to consolidate in the satellite business is strong. First, there is the major capital expense of building, launching, and insuring a satellite (over $250 million per). Then there is competition:
The talks also reflect escalating pressures on small and even midsize operators -- many supported by governments -- to compete in today's volatile satellite-services markets. Parts of Asia and Latin America, for instance, suffer from excess in-orbit capacity that has depressed prices for transmission agreements.
Intelsat is currently the #2 satellite company in the world, after Luxemburg-based SES Global SA. SES is itself the product of a 2001 merger between SES and General Electric’s satellite holdings, (GE still owns 25% of that company.) SES has 35 satellites in orbit, while the new company, if the talks pan out, would have 33. Us-based PanAmSat has 24 satellites in orbit, while French Eutelsat owns 22 satellites.
PanAmSat is another interesting story in its own right. First, it was acquired by DirecTV (part of the News Corporation) as part of its Hughes Communications purchase in 2003. In 2004, it was sold to private equity firms KKR, The Carlyle Group and Providence Equity Partners for $4.3 billion in 2004. These companies spun off a big portion of the company in a 2005 IPO, reportedly making a major profit off the deal.
The two companies are reported to be complementary in terms of geographical coverage. What is fascinating is that New Skies was split off from Intelsat in 1998. As the WSJ article notes:
U.S. law barred the two firms from even considering recombining until this summer, when Congress eliminated those restrictions.
Wonder who lobbyed for that change in the law?
