SatMex Suspends Auction For Lack Of Adequate Bidding On Company

Satelites Mexicanos S.A. de C.V. (SatMex) Mexico’s predominant satellite service provider, announced June 8 that it was suspending its sale process for the company’s capital stock.

Luis Rebollar, chairman of SatMex’s board, said in a statement that "we believe SatMex is a valuable asset, and its management and board of directors are committed to constantly improving its operations, performance and efficiencies. We believe there are a number of opportunities available to SatMex that should help us maximize value."

Rebollar added "we believe the company’s existing capital structure that resulted from our successful restructuring [and] our current slate of independent directors has positioned us well to ensure SatMex continues to offer premier satellite services to our customer base going forward."

The announcement came one day after French-owned Eutelsat Communications submitted an offer with two Mexican partners (Miguel Aleman Group and Clemente Serna Group) for 100 percent ownership of the Mexican satellite operator.

The sale had been proceeding since January before its technical committee – organized under the equity trust that holds the majority of SatMex’s stock – decided to suspend it.

"The technical committee believes it is in the best interests of the beneficial holders of SatMex’s stock to suspend the recently run auction process since the bids generated to date do not adequately meet the requirements of the technical committee and expectations of the parties," it said in a stetment. "Following suspension of the sale process, SatMex and its board of directors intend to focus energy on finalizing various negotiations that may ultimately have a positive impact on SatMex’s operations and its shareholder value. SatMex’s management remains committed to improving [its] operational efficiencies and performance and growing its market share."

The company said it would review alternatives to a sale during the next several months, adding "there can be no assurance that this process will result in a sale transaction or enhanced value."

Eutelsat was one of an undisclosed number of bidders. Its proposal had been submitted as per the sale process initiated by SatMex’s shareholders and managed by Morgan Stanley. Financial details were not disclosed.

Likewise, a spokeswoman for SES Americom, a putative bidder, cited a non-disclosure agreement and otherwise declined to comment.

In October, Mexico’s Communica-tions Ministry appointed a mediator to oversee the restructuring of the satellite operator.

White & Case partner Thomas Heather was been appointed by the Mexican government to help move the restructuring process along, because "creditors and SatMex’s shareholders [had] been frustrated by the lack of progress in the restructuring talks," White & Case said.

SatMex agreed to the restructuring in order to avoid an involuntary bankruptcy proceeding filed in May 2006 in the United States by the company’s U.S.-based creditors.

In June 2006, SatMex filed for concurso mercantil, a proceeding in Mexico similar to a bankruptcy proceeding in the United States, and by July the U.S. creditors had agreed to withdrew their bankruptcy petition in favor of the voluntary restructuring.

The May 2006 launch of Satmex-6 on an Ariane 5 ECA had been the most favorable news SatMex and the Latin American market had received in the recent past.

Previously, analysts at Aon Explorer forecast that the satellite market would continue expanding, growing to 694 transponders by 2014. Meanwhile they predicted a 3.2 percent compound aggregated growth revenue (CAGR) and revenues from operations expanding to $834 million by the end of 2014.

Within the next decade, Aon Explorer expected C-band services to remain strong in the Latin American region, though declining to 66 percent by 2014. Television was expected to continue to generate nearly half of the demand for satellite transponders, while the Internet share was forecast to expand to 39 percent by 2014.

In addition, industry analysts at Frost and Sullivan predicted that in the case of networking applications, the demand for satellite transponders most likely would stem from higher bandwidth requirements in videoconferencing, distance learning and telemedicine, especially within large countries such as Argentina, Brazil and Mexico.

With the addition of the Space Systems/Loral-built Satmex-6, the company added substantial capacity to its fleet, with 36 C-band transponders and 24 Ku-band transponders providing coverage of Mexico plus most of North America and Latin America. The spacecraft joined a pair of C-/Ku-band satellites, the Boeing 601HP Satmex-5 and Boeing 601 Solidaridad-2.

At the time of its orbiting, analyst Maria Velez de Berliner, president of Latin Trade Solutions, described Satmex-6 as a "pretty interesting satellite" in terms of the capabilities it brought to the region. Andrea Maleter, technical director for Futron Corp., added that the satellite offered the breadth of coverage and higher power capacity needed to realize emerging opportunities in the Latin American market.

But for SatMex executives, having another spacecraft to sell in a challenging market, coupled with the company’s ongoing financial restructuring, raised more challenges than solutions. With little uptick on the emerging opportunities front and the continued oversupply of satellite capacity shadowing the region, garnering actual business revenues from this investment has remained a challenge without a solution.