Analysts Question Harbinger’s Intentions With Inmarsat
[Satellite News – 07-08-08] Inmarsat has held preliminary discussions with U.S. investment company Harbinger Capital Partners, Inmarsat’s largest shareholder, which could lead to Harbinger taking over the satellite operator.
Harbinger initially acquired a 10.2 percent stake in Inmarsat in October and now holds a 28.2 percent stake in the operator. With Harbinger also holding stakes in SkyTerra Communications Inc., the parent company of Mobile Satellite Ventures (MSV), and TerreStar Corp., a pair of companies developing mobile satellite business that also will rely on ancillary terrestrial component (ATC) technology, the question is what is Harbinger’s strategy in the mobile satellite services arena?
A leading satellite equity analyst, who wished to remain anonymous, was fairly critical of Harbinger’s strategy. “Harbinger are very smart guys. Everything they do looks very clever with the exception of ATC,” the analyst said. “We think that they have been sequentially wrong about ATC on several occasions when they could have reduced their exposure, and in fact, they have actually increased it. Now, do you go with the fact that 99 percent of the things they do are clever and right, or do you go with what they are doing in the spectrum space, and say, ‘No. They don’t get it.’ We like Inmarsat a lot as a stock. That is nothing to do with ATC. Are Harbinger looking to double up their exposure in spectrum trading and assets, or are they looking to lock in to the rest of the things that Inmarsat does, which we are very positive about? Our suspicion is that they are still enthusiasts for spectrum arbitrage.”
Tim Farrar, president of Telecom, Media and Finance Associates believes that Harbinger’s motives with Inmarsat are simply to recoup investment losses in TerreStar and MSV. “Harbinger has lost about $500 million so far. Buying Inmarsat is their only option to avoid a very difficult situation for its MSV interests over the next couple of years,” he said. MSV’s existing resources run out at the end of this year or early next and then it has to find $400 million to build and launch MSV-1 while building MSV-2. Where’s that money going to come from?”
MSV announced July 8 that is had reached an agreement with satellite manufacturer Boeing Satellite Systems to defer $40 million of payments on the construction of the MSV-2 satellite. The $40 million deferral is in addition to the original construction payment deferral of $76 million. Deferred payments are now due by December 20, 2010, or 10 days before shipment of the second MSV satellite, whichever is earlier. MSV said construction is on schedule for the 2009 fourth quarter launch of MSV-1 and the 2010 third quarter launch for MSV-2.
Selling on Inmarsat
Finding out what Harbinger’s true intentions in this area is far from easy to deduce. “When they bought in October last year, we looked at the possibility of them buying the whole company,” the unnamed analyst said. “They have had that stake for a long time now, and they are not the type of guys who are just going to sit there. As time has gone on, there has not been an ATC deal. The other possibility is that they have no intention of making a full offer, and they are just doing what they have done in the metals sector and try and persuade a bigger player to come in and pay a premium for the whole company. So we would not be surprised if they are trying to get SES to take the stake off their hands. It is very hard to read their intentions,” the analyst said.
John Davies, a satellite equity analyst at Dresdner Kleinwort, said he was surprised by the timing, “but the fact is they are thinking of buying the whole thing is not a big surprise given that they already had a 30 percent (stake in the operator). I think there is a good chance this will happen, but there are quite a lot of potential things that could get in the way,” he said. “It really depends on what they want to do with it, which isn’t clear. If they want to merge it into other businesses, there are regulatory issues which could take a long time to overcome given the number of countries involved in regulating these types of businesses,” he said.
“The consensus in the industry is that there’s not going to be an ATC deal with a strategic partner as opposed to a pure financial investor for at least 18 to 24 months,” said Farrar. “In that case, TerreStar and MSV have to battle just to survive. Harbinger has lost about $500 million in its investments with spectrum so far, and one of the easiest ways to keep MSV afloat is for Harbinger to buy Inmarsat and merge it with MSV, use Inmarsat’s cash flow to fund MSV’s satellite build and wait it out.”
Inmarsat officials refused to comment further on the situation.
Analysts are unsure of what specific level of consolidation might take place in the MSS space as a result of any potential deal here. “Inmarsat’s attitude over the last few years was that the sooner these strugglers roll over and die, the better,” the unnamed analyst said. “This is why we were a little bit surprised that they were prepared to do the spectrum deal with MSV last year. If they had not done that deal, it is quite possible MSV would have died by now. We don’t think there will be a wider consolidation in the MSS space as a result of this. A shakeout is not the same as a consolidation.”
Davies added, “It does seem to me there are an awful lot of companies knocking around in this area, but the question I always have is that a few of them seem to be quite weak. One possible play would be just to wait around and watch some satellites die. It sounds cynical, but that is how things could work. That is probably why Inmarsat has not been launching bids for these other operators.”
“Most of the other investors in Inmarsat have been buying into the company under the expectation that its core MSS business is valuable and growing,” said Farrar. “The MSS industry is at a difficult point in time which will extend over the next few years. If there’s no ATC deal, then TerreStar, MSV, ICO and GlobalStar have essentially staked a large part of their future and their investor’s money on overcapacity. All of those companies will run out of money in the next 12 months.”