Intelsat Moves Forward With IPO, Loral Assets
Intelsat Ltd. aggressively is trying to become a long-term industry survivor by filing with the Securities and Exch-ange Commission (SEC) to proceed with its planned initial public stock offering (IPO) and by completing its purchase of the North American satellite assets of rival Loral Space & Communications [LRLSQ].
A preliminary prospectus submitted by Intelsat last week to the SEC indicated the IPO managed by Morgan Stanley and Merrill Lynch will be priced between $12 and $14 a share. Intelsat reported in February it planned to raise $500 million through the offering, while certain company shareholders would be able to sell stock as part of the IPO. Intelsat’s proposed NYSE ticker symbol is IS.
It also is anticipated that the initial public offering would occur on or before June 30 to comply with a U.S. government deadline for the company to disperse its current ownership.
The company would not receive any of the proceeds from the sale of shares by the selling shareholders. However, Intelsat plans to use proceeds for shares of stock it sells through the IPO for general corporate purposes and, if need be, to repay $200 million in principal for the company’s 8 3/8-percent notes due Oct. 14, 2004.
Intelsat, incorporated in Bermuda, cleared another important hurdle last week when it completed its previously announced $1.027 billion purchase of New York-based Loral’s North American satellite fleet. The price paid by Intelsat includes $977 million for Loral’s satellites and related assets as well as a $50 million deposit for the construction of a new Intelsat satellite to be built by Loral’s manufacturing unit, Palo Alto, Calif.-based Space Systems/Loral (SS/L).
The transaction gives Intelsat its first North American satellites and an estimated 20-percent share of the U.S. satellite transponder market. Loral gains much-needed cash to pay the entire secured bank debt it owes and it also meets a “major milestone” in its plans to emerge from Chapter 11 bankruptcy reorganization. The deal enhances Intelsat’s global market position by adding full coverage of North America to its existing fleet and expanding its customer base in the broadcasting, cable television and corporate networking segments.
Intelsat, a former intergovernmental satellite organization, had been unable to build and launch satellites to provide direct service to the United States prior to its July 18, 2001, privatization. With Intelsat’s traditional point-to-point telecommunications revenue base shrinking as it loses customers to lower-cost fiber-optic cable in developed parts of the world, increased video services are important for Intelsat to reverse its trend of reduced revenues and profits.
“We have experienced erosion in or revenue from point-to-point services in recent years due to the build-out of fiber-optic-cable capacity, and we expect this erosion to continue,” Intelsat acknowledged in the F-1 registration statement it filed last week in pursuit of its IPO. The company’s plan to address that shrinkage of its core business is to expand its customer base in point-to-multipoint services, such as video.
With the continental United States offering the world’s largest broadcasting market, Intelsat is expecting the Loral purchase to bolster its future growth.
“Our ability to increase our share of the video market will depend in part on our ability to complete the proposed Loral transaction and successfully integrate the acquired assets,” Intelsat disclosed in its IPO prospectus. Intelsat will be hampered in attracting broadcasting customers because many of its competitors have long-term contracts with such customers and the users have their receiving dishes pointed at the satellites of the satellite operator’s competitors.
Intelsat officials viewed the Loral acquisition as the fastest and best way to address is weaknesses of limited direct service to the big U.S. market and scant video service. Loral’s North American satellite assets fulfill key strategic priorities for Intelsat by enhancing its worldwide network coverage and immediately establishing the company as a serious competitor in the North American video market, said Conny Kullman, Intelsat’s CEO.
“Our focus now is on providing a seamless and efficient transition for all Loral customers that we have acquired,” Kullman said. “These assets are an excellent fit with our existing network, and we expect the transition to move smoothly.”
The North American satellites allow Intelsat to provide one-stop shopping for broadcasters or other companies needing to connect from or to almost any point on Earth, Kullman added. In addition to adding prime North American coverage to the Intelsat fleet, the assets provide important Ku-band capacity to serve Latin America and to further enhance the company’s global, end-to-end satellite and land-based network.
Roger Rusch, president of the TelAstra satellite-consulting firm in Palos Verdes, Calif., said Intelsat’s pending IPO and $1 billion-plus acquisition of a rival’s best assets shows that satellite communications companies are “living in interesting times.”
Intelsat is wise to pursue the video market, if the company is able to leverage its purchase of Loral and grow the business in the face of fierce competition from SES Americom and PanAmSat [SPOT]. SES Americom and PanAmSat collectively dominate the U.S. video market in the satellite industry.
However, such DBS providers as DirecTV and EchoStar Communications [DISH] need more capacity for local-into-local as well as HDTV in the next few years, Rusch said, adding the FSS companies have far too much capacity. But they continue to order more satellites, Rusch said, and this situation sets the stage for some surprising alliances and new twists that have yet to be revealed.
“EchoStar is already using FSS capacity for local-into-local,” Rusch said. It is sharing capacity on one of the satellite’s Intelsat bought from Loral: the EchoStar 9/Telstar 13. In addition, EchoStar is planning strategic developments with SES.
(Diane VanBeber, Intelsat, 202/944-7406; John McCarthy, Loral Space, 212/697-1105; Roger Rusch, TelAstra, 310/373-1925)