IPO Would Unshackle Intelsat From ORBIT Act
By Maury Mechanick, White & Case LLP
For awhile, it was beginning to appear as though the former intergovernmental organizations (IGOs) in the satellite industry never were going to go public, despite a clear mandate to do so from the U.S. government’s enactment of the ORBIT Act.
Hamilton, Bermuda-based Intelsat’s recent public announcement of its intent to proceed with its initial public offering (IPO) during the second quarter of 2004 puts the industry on the verge of achieving the first true public ownership of a former satellite IGO. At the same time, it may turn out that a second former satellite IGO – London-based Inmarsat – is as much of a full-fledged, private-sector satellite company as it would be if it already had gone public. Thus, the long-awaited transformation of intergovernmental organizations to corporate entities soon may be complete for both companies.
For those who followed the privatization saga from its beginning in the early 1990s, the entire process has been nothing short of remarkable. The process has careened at times from the ridiculous to the sublime. For those outside of the industry, the question always has been: Why it has taken so long to achieve? Those inside the industry often marvel at how quickly the change has occurred.
Throughout the process, the relative importance of achieving an appropriate level of public ownership through a stock listing loomed as one of the most daunting issues to be addressed. Much of the drama unfolded against the backdrop of zealous devotion by the U.S. government’s legislative and executive branches to achieve high levels of public ownership in each satellite organization. Those passions, however, contrasted to a much more laissez faire attitude from the European Union and others around the world.
At its essence, the overarching U.S. government regulatory philosophy was to assume the worst and to seek corrective actions in advance to protect against any potential abuses. This “a priori” American approach was diametrically opposed to the European view of assuming the best but preparing to take corrective action if and when problems actually arose. Europe’s “a posteriori” approach was a fundamental philosophic difference that surfaced in various ways throughout the privatization process. The American and European approaches also contrasted about whether the proper exercise of governmental influence was to be directive or suggestive as well as whether to apply the classic “carrot” versus the “stick” dichotomy to cause desired outcomes.
With respect to spurring public ownership, the final outcome largely was a draw between the U.S. government and others around the globe. The spinoff of certain Intelsat satellites to create New Skies Satellites N.V. [NSK] of The Netherlands was a privatization “trial balloon,” effectuated largely along the lines favored by IGO Parties and Signatories outside the United States. The U.S. government nonetheless reigned supreme in the final act of the drama with its adoption of the ORBIT Act.
Indeed, had the original U.S. position in favor of massive public ownership of New Skies prevailed, the company would have needed to pursue such an IPO at roughly the same time that the stock market was cratering. Initially, 60 percent of New Skies would have been sold to the public in one fell swoop, followed by a second offering of an additional 20 percent a year later. If ever a recipe for government-mandated financial disaster existed, that would have been it. Fortunately, wisdom ultimately prevailed when the U.S. government beat a hasty retreat from its position in the face of global opposition.
However, the subsequent enactment of the ORBIT Act as the law of the land in the United States effectively let the country impose its will about public ownership upon the other 145 countries that comprised the Intelsat organization. Whether the ORBIT Act should be characterized as a gun pointed at Intelsat’s head or as a largely irrelevant inevitability of public ownership is unclear but the process is about to be played out, even if somewhat later than originally envisioned.
Among the three major satellite IGOs that have undergone privatization at more or less the same time, it seems fitting that the first to truly achieve a measure of public ownership would be Intelsat. The company truly is global in nature, because it offers services in more than 200 countries. It certainly fits the bill as the prototype for a publicly traded global satellite company. At the same time, Intelsat, in contrast to Inmarsat and Paris-based Eutelsat, has incurred the least amount of dilution to its ownership among the three former IGOs. Indeed, the original Signatory owners of both Inmarsat and Eutelsat have been largely divested, albeit through the private-equity route rather than through a public offering.
Eutelsat was blessed not to have faced any formal requirement by the ORBIT Act to go public under what largely have been poor market conditions since the ORBIT Act was passed. Meanwhile, European Union (EU) desires for an Eutelsat IPO appear to have receded, at least for now. Inmarsat has complied with the spirit, if not the literal letter, of the ORBIT Act via the sale of a controlling stake in the company to Apax and Premira. An innovative and creative argument has been proposed that Inmarsat already fully complied with the ORBIT Act requirements by listing its public debt on the Luxembourg Stock Exchange. Whether this reasoning stands or not will be up to the Federal Communications Commission (FCC) to decide later this year.
But for Intelsat, the time is now. Whatever flexibility the company may have had to seek another congressional reprieve was complicated by the FCC’s decision approving Intelsat’s purchase of the U.S. assets of Loral Skynet. That deal effectively required Intelsat to complete the IPO within 180 days of closing the deal or face the daunting task of discontinuing any direct-to-home (DTH) services now carried on the former Loral satellites. The provision of DTH signals is characterized under the ORBIT Act as “additional services” that Intelsat may not offer until it has been fully privatized through an IPO that involves substantial dilution of the company’s existing ownership.
Most importantly, however, it truly is in Intelsat’s best interests to eliminate the ORBIT Act’s overhang and its accompanying disruptive uncertainty. A publicly traded Intelsat could once and for all shed its IGO operational legacy and become a fully competitive player in the marketplace. If the current volatility of the stock market stabilizes enough to allow the IPO to proceed as planned, Intelsat would be unshackled from obligations imposed by the U.S. government to change the company’s ownership. Intelsat’s management then could focus instead on running the business in a highly competitive marketplace.
Maury Mechanick is a former chairman of the Intelsat Board of Governors who now is an attorney in the Washington office of the White & Case law firm as a member of the firm’s Telecom, Media and Technology practice group. He can be reached at 202/626-3635 or by e-mail, firstname.lastname@example.org.