In Review: Measuring the State of the IPOs
By Nick Mitsis and Mark Holmes
The year 2005 certainly was a busy year for investors with five satellite operators – Panamsat, New Skies, Inmarsat, Worldspace and Eutelsat – launching initial public offerings (IPO). Most analysts believe that the demand for satellite communication will continue to grow, particularly as service costs continue to fall, which is expected to bring even more attention to these public companies. The newly public companies made strong debuts in 2005, and the stage is set for active growth within the global satellite services sector, making 2006 and beyond worth watching.
Panamsat Holding Corp.
Panamsat was the first major satellite operator to launch an IPO in 2005. The company set an IPO price of $18 and bounced back from an early decline to close Dec. 30 at $24.50.
Even with the solid year-end performance, Panamsat had a challenging start, as the stock did not take off as many had hoped in the first weeks following the IPO. The stock hit Wall Street March 17 and suffered through a slow decline in its first weeks, hovering between $17 and $18 per share, with a slight dip to $16.55 and $16.98 through the beginning of April.
Panamsat’s stock will not be on the market much longer, as Intelsat Ltd. announced Aug. 29 that it signed a definitive merger agreement to acquire Panamsat for $25 per share in cash, or $3.2 billion. The Intelsat-Panamsat merger took its first step toward completion when Panamsat shareholders approved the deal, Intelsat CEO David McGlade said during a Nov. 10 conference call with investors.
That Panamsat shareholders approved the deal should not have been a surprise, given that investors stand to receive $25 per share, a premium of 26 percent over the share price the day the merger was announced and a 39 percent share price over Panamsat’s $18 initial public offering. The per share price, which stood at $24.50 Dec. 30, should inch closer to $25 over the next few months as the deal approaches completion.
As we went to press, the deal was still pending regulatory approval. Once completed, the new Intelsat-Panamsat will become the largest global satellite operator, using a combined fleet of 53 satellites, the company will serve customers in more than 220 countries and territories.
New Skies Satellites Holdings Ltd.
New Skies Satellites was the second to market, launching trading May 10. The fifth largest satellite operator has never fallen below its IPO price of $16.50.
New Skies was considered one of the more attractive companies to be acquired in an expected industry consolidation, and after flirting with many suitors, New Skies agreed Dec. 14 to be acquired by SES Global for $760 million in cash, subject to various approvals. SES also will assume $400 million of New Skies debt, giving the deal a total value of $1.16 billion.
New Skies shares closed at $23.50 Dec. 13, the day before SES announced it would pay $22.52 per share for the satellite operator. New Skies stock then fell to $21.77 Dec. 30 and, like Panamsat, likely will not see any significant movement until the acquisition nears completion.
SES Global will re-finance the existing bank debt of New Skies and may leave the Floating Rate Senior Notes and Senior Subordinated Notes of New Skies outstanding. As part of the agreement, New Skies has agreed to terminate its quarterly dividend program after the declaration and payment of its 2005 fourth quarter dividend.
The integration of New Skies’ satellite assets will extend SES’ presence in India, the Middle East and Africa as well as in Latin America. As we went to press, the deal was still pending regulatory approval. Once completed, the new SES Global-New Skies will become the second largest global satellite operator, using a combined fleet of 45 in-orbit satellites.
Inmarsat has fluctuated since opening at 2.85 pounds ($4.93) June 20 but has remained consistently above 3 pounds ($5.27) since Nov. 1, closing the year at 3.45 pounds ($6.06) Dec. 30.
Inmarsat CEO Andy Sukawaty says his company’s IPO was different than the other satellite companies, as Inmarsat is the only Mobile Satellite Services company to hit the stock exchange in 2005.
"We, I think, have a different financial profile, which we were quite clear in presenting. In the mobile satellite services business we don’t have long-term contracts or order books and we don’t talk about things like transponder utilization. Instead, we sell on a minutes and bits basis. It requires a large capital investment up front and then you reap the benefits of that over a large period of time as opposed to the Fixed Satellite Services business, where you put up satellites with a contract for a specific geography," says Sukawaty. "To get that story told required making it clear to people that we are different, so we decided to list in London instead of the United States, where the recent IPOs in the satellite sector have been done. I think that was quite effective, because we got our story listened as well. We priced at the top of the range and we were 10 times over- subscribed. So demand was clearly there. I think it was a combination of our strong dividend yield along with the prospects for growth that is quite a unique profile in the financial markets today. Also, there are not that many companies that are as mature as we are that are doing their initial public offering. So that made us a new entrant but one which was a unique and rare opportunity to get on the bandwagon with."
Undoubtedly, Inmarsat stock’s 2006 performance will be tied to how well the company’s Broadband Global Area Network (BGAN) service performs. Based on Internet protocol technology, BGAN delivers data rates of up to half a megabit and the service is accessed through a small, lightweight satellite terminal. The service is scheduled to launch in Europe, the Middle East and Africa. However, competition will be tough.
Worldspace Inc., a provider of subscription-based satellite radio services in Asia, Western Europe, Africa and the Middle East, entered the public market during the summer, seeking to raise $100 million through its IPO.
Worldspace made its debut Aug. 4, pricing the IPO at $21 per share. The stock closed its first day of trading at $22.36, trading as high as $26 early in the day. The slight run-up could speak to investors having a favorable opinion on Worldspace’s prospects, especially with the recent investment in the company by XM Satellite Radio.
But Worldspace has had the roughest year of any of the companies that performed IPOs. After its opening the stock sharply declined. Worldspace shares fell to their lowest point Nov. 30, closing at $10.93. The stock recovered some losses during December, boosted by the company reaching the 100,000-subscriber mark and continuing its expansion in India. "Reaching 100,000 subscribers is an important milestone for Worldspace, and it reflects the effective implementation of our strategic plan, which is to leverage attractive market opportunities for our subscription service," Worldspace CEO Noah Samara says.
On Dec. 7, the day the milestone announcement was released, Worldspace shares jumped 60 cents to close at $11.78. The upward momentum carried to the next trading day, with shares closing at $12.25. The stock closed the year at $14.51 Dec. 30
While the news is good for Worldspace, analysts expect the stock to linger below the IPO price for a while longer. If Worldspace can demonstrate an ability to pick up its next 100,000 subscribers faster than the more than six years it took to hit the first 100,000 subscribers, investor interest should pick up, which should in turn help drive the value of the stock.
Eutelsat Communications just barely performed its IPO in 2005, postponing its first attempt in October before going public Dec. 2.
After setting an IPO price of 12 euros ($14.22), The stock fell below its IPO price on its opening day and continued to drop throughout the next two trading days. Eutelsat then rebounded, matching its IPO price Dec. 7 and climbing to 12.36 euros ($14.59) the following day.
The stock climbed as high as 12.36 euros ($14.65) Dec. 8 before closing at 12.10 euros ($14.64) Dec. 30, suggesting the pricing of the stock and the market’s perception of its value are more or less in line.
This was Eutelsat IPO second stab at a public offering. The company withdrew its first attempt at an IPO in October, citing the market conditions at the time. The October IPO was criticized for being overpriced by the UBS equity research firm that suggested that the offering range of 15.25 euros to 17.75 euros ($18.51 to $21.54) would place the stock’s value at a premium compared to SES Global.