Inmarsat Heads Toward Altar
London-based Inmarsat Ventures appears on the verge of gaining new owners after an independent committee of the company’s board accepted a takeover offer of slightly more than $1.4 billion from two UK-based private equity firms.
The board agreed to give Apax Partners Worldwide and Permira Advisers the “exclusive” opportunity to finalize terms of the offer. The firms are offering just over $14 a share for controlling interest in the world’s largest mobile satellite services operator.
The next step will be for Inmarsat’s board to ratify whatever formal purchase agreement emerges, then send it to shareholders for a vote.
That vote would occur in conjunction with an extraordinary general meeting of the Inmarsat shareholders. A “super-majority” of at least 75 percent of Inmarsat’s shareholders would need to approve the company’s sale. Until such a vote occurs, no sale agreement would be final.
Two other offers for Inmarsat were submitted but those suitors will have to wait and see if the proposal from Apax and Permira is approved. One of those bids, also seeking controlling interest in Inmarast, came from private equity firms Apollo and Soros.
The other bid — submitted to Inmarsat CEO Michael Storey in late August after the others already had been put forth — came from Chicago-based Madison Dearborn Partners. Madison Dearborn offered $15 a share for close to 30 percent of Inmarsat. Madison Dearborn opted to stay beneath a 30 percent ownership threshold to avoid triggering a requirement under UK law that would have forced it to make the same $15 a share offer to all Inmarsat shareholders, sources familiar with the proposal said.
The Madison Dearborn bid was structured to provide shareholders:
- the opportunity to receive $15 per share in cash up front;
- a chance to sell their shares at whatever price is set for the initial public stock offering (IPO) that Inmarsat is required by the U.S. ORBIT Act to complete by June 30, 2004; or
- the option of keeping their shares.
The Madison Dearborn bid was aimed at enticing shareholders who did not want to sell their shares immediately for $14 a share, sources familiar with the proposal said.
Inmarsat’s existing shareholders, which are primarily distributors of Inmarsat services, have a vested interest in ensuring that the company’s new owners are supportive of those existing relationships.
“Certain shareholders might have preferred an Inmarsat ownership structure that did not transfer control of the company,” one source knowledgeable about the Madison Dearborn bid said. In addition, the bid called for Inmarsat to pay an annual dividend to shareholders of $100 million a year that would equal about $1 a share, sources familiar with the offer said.
With Inmarsat projected to generate upward of $300 million in free cash flow beginning in 2005, an annual payout of that amount would be within the company’s reach.
However, Inmarsat specifically sought offers from those who wanted to buy the entire company, not just a minority stake, sources familiar with the process said. As a result, the Madison Dearborn offer did not fit the previously stated preferences of the Inmarsat representatives.
William Coulter, a partner in the Washington office of the Coudert Brothers law firm who focuses on the satellite sector and the broader telecommunications market, said that Inmarsat needs to resolve its ownership situation quickly to move forward in a “very difficult” investor environment.
The company has benefited from business generated by the war in Iraq, which underscored the importance of mobile satellite services, Coulter said.
“Inmarsat’s investors, some of whom have unrelated cash flow difficulties and have different core services now than 10 years ago, know this,” Coulter said. “Michael Storey knows this, too.”
Left to be determined is what Apax and Permira would do with Inmarsat if the transaction were completed. Another question is which Inmarsat shareholders would sell their stakes and which would choose to retain their shares, he added.
Norway’s Telenor Satellite Services, Bethesda, Md.-based Lockheed Martin [NYSE: LMT], and Japan’s KDDI are Inmarsat shareholders, collectively owning more than a 35 percent stake.
Tore Hilde, Telenor’s chief executive officer, declined to speculate on the potential sale of Inmarsat and on its future ownership structure. Telenor will continue to offer new Inmarsat technologies and services to the global market, regardless of ownership, Hilde added.
Advanced Mobile E-mail
Telenor’s commitment was apparent Sept. 17 when the company unveiled a new e-mail communications service to work in conjunction with the Inmarsat satellite system. The e-mail service is intended to reduce costs by up to 80 percent and to improve transmission efficiency.
Users of the service would be able to send and receive e-mails simultaneously, Telenor officials said. The new remote e-mail service works with Telenor’s Inmarsat A, B, M, Mini-M, Fleet and Global Area Network (GAN) technologies, serving maritime and land mobile users.
A key to Inmarsat’s future is its new Inmarsat I-4 satellite system. Beginning in 2005, the system is expected to support the Inmarsat Broadband GAN (B-GAN) and to provide mobile data communications at up to 432 Kbps for Internet access, mobile multimedia and other advanced applications.
That level of performance would be a major step forward into the era of high-speed service to upgrade Inmarsat’s current 64 Kbps speed capability that links phone, fax and data communications to more than 250,000 ship, vehicle, aircraft and portable terminals. Thousands of new users are added each month, company officials said.
The Inmarsat business strategy is to pursue a range of new opportunities aimed at the convergence of information technology, telecommunications and mobility, while maintaining its traditional service to the maritime, aeronautical, land-mobile and remote-area markets.
Inmarsat Ltd., a subsidiary of Inmarsat Ventures, operates a constellation of geostationary satellites designed to provide mobile phone, fax and data communication services worldwide. The Inmarsat constellation comprises five third-generation satellites that are backed up by four second-generation spacecraft.
Roger Rusch, who heads the TelAstra satellite consulting firm in Palos Verdes, Calif., said he is a “great admirer” of Inmarsat but questioned whether all its shareholders are contented.
On the surface, the reasoning for the company’s sale appears to be that the U.S. ORBIT Act requires a broader ownership base for the company, as well as the holding of an IPO. Many Inmarsat shareholders are European telecommunications companies that could use the cash.
“Why are they selling a majority stake in the company?” Rusch asked rhetorically. “Do they know something that we do not know?” Rusch wondered aloud whether certain shareholders expect Inmarsat’s profit picture to weaken over the next few years.
“We hear that the 64 Kbps BGAN service is not selling like hotcakes,” Rusch said. Thuraya, a rival mobile satellite communications service operating in the Middle East, is attracting customers and beginning to offer maritime handheld phone service, Rusch added.
(Dominic Cook, Inmarsat, 44 20 7728 1256; William Coulter, Coudert Brothers, 202/775-5100; Tom Surface, Telenor, 301/838-7805; Roger Rusch, TelAstra, 310/373-5539)