Satellite Biggies Get Bigger

Michael Hedges August 30, 2005

PanAmSat Holding Corp. agreed to be acquired by Intelsat Ltd in a $3.2 billion deal creating the largest private satellite operator on the planet. The deal was announced yesterday (August 29). The combined company will operate 53 satellites.

High flying global private equity firms are leading the consolidation of satellite operators. Many of these financial investors have jumped in and out of deals within months, as is their style. Smaller satellite operators - those with only a few objects in space - might see their share prices sky-rocket as "venture vultures" circle around.

PanAmSat floated an IPO in March, raising $900 million. Financial investors led by Kohlberg Kravis Roberts & Co. (KKR) bought the company only a few months earlier for $4.3 billion, separating PanAmSat’s satellite operations from principal investor DirectTV, controlled by News Corp. At that time PanAmSat managed 29 satellites, owning 24, largely covering North America.

In May 2004, a month after KKR bought PanAmSat, Intelsat withdrew its IPO, citing changes in US regulations. By August 2004 Intelsat was bought out by a consortium of private equity firms called Zeus Holdings for $3 billion. Zeus Holdings owners include Apax Partners, a major Silicon Valley investor, Madison Dearborn Partners, an investor in XM Satellite Radio, and Permira Advisors. KKR and Permira Advisors bought SBS Broadcasting last week. Apax Partners financed the 1993 start-up of Virgin Radio in the UK then financed Ginger Media’s purchase of Virgin Radio in 1997.

Intelsat was formed as the International Telecommunications Satellite Organization (ITSO) in 1964 with an initial partnership of 11 countries and is credited for broadcasting the first moon walk and other telecommunications firsts. The company was first privatized in 2001, then having 144 member countries.

Intelsat is rumored to be in “close” talks with Dutch-based New Skies Satellite, which was split off from Intelsat in 1998. Reuters and the Wall Street Journal reported last week (August 22) that the deal could be worth $1.3 billion. The “recombination” is now allowed under the aforementioned changes in the US law. The Blackstone Group, another private equity firm, owns New Skies Satellite Holdings.

Former number one satellite operator is Luxembourg-based SES Global with 33 birds. The French Eutelsat operates 22.

Interest in the satellite sector, subject of recent articles in both the Washington Post and the New York Times, is fueled by short-term demand by governments, largely the US Defense and Homeland Security Departments but also local authorities. Short-term demand and short-term profit taking are the grist of private equity firms, for whom long-term usually means sundown. These financial investors are flying high. Meanwhile, so far in 2005, strategic investors are lying low.

ftm Follow Up & Comments