Paris-based Eutelsat S.A. is a profitable global satellite operator that appears unlikely to be sold anytime soon, despite unsolicited buyout offers it has received from its two biggest U.S. rivals.

A much more likely outcome is a joint venture or a partnership to operate a satellite that could be shared, said Joseph Wright, the CEO and president of Wilton, Conn.-based PanAmSat Corp. [SPOT], one of Eutelsat’s suitors. Wright is focused on alternatives now that his company has opted to pull out of bidding for Eutelsat.

Three major hurdles have emerged that prevent an acquisition of Eutelsat from occurring in the near future. One problem in reaching a deal is Eutelsat’s diverse shareholder base that encompasses organizations that have different objectives and time horizons for selling their holdings. Another barrier is resistance to a takeover of Eutelsat by European regulators who are concerned about moving decision-making for future launch and satellite purchases to the United States. U.S. ownership of a large European satellite operator could hurt other companies in the region in bidding for satellite launch and manufacturing contracts, regulators fear.

A third barrier is that Eutelsat’s management does not appear interested in selling and seems to prefer proceeding with an initial public stock offering (IPO) when market conditions improve.

These challenges have not stopped Washington-based Intelsat from making an offer to acquire all of Eutelsat and seeking a way to advance the process. Delays in moving forward have “frustrated” Intelsat officials but their interest in buying Eutelsat remains firm, they said.

Intelsat and Eutelsat are both former intergovernmental satellite organizations that are under legal mandates to go public. However, poor market conditions have prompted governmental authorities in the U.S. and Europe to offer extensions to these mandates. Those delays have caused certain Eutelsat shareholders to seek ways to cash out now.

Last December, Deutsche Telekom sold its 10.87 percent stake in Eutelsat for 210 million euros ($227.26 million) to De Agostini S.p.A., an Italian publishing group. Deutsche Telekom’s stake was placed in a newly founded holding company in Luxembourg, in which Deutsche Telekom and De Agostini will hold a joint interest, along with 21 Invest.

The presence of Lehman Brothers and other financial investors in Eutelsat’s current shareholder base has added “complexity” to a potential acquisition, Wright said.

The “best overall match” is Eutelsat and PanAmSat, he said. “We explained to Giuliano Berretta [Eutelsat’s chief] that he has built a valuable franchise, particularly at 13 degrees E. We respect him and his company a great deal.”

However, the process of attempting to acquire Eutelsat became “very complex,” Wright said. “For now, we are going to pull out of the process.”

A deal might be possible once Berretta resolves how to provide “liquidity” to his shareholders and satisfactorily address European regulatory concerns about a sale of Eutelsat to a U.S. company, he said. “Everything is open. We simply did not feel comfortable with the process. I think Berretta is doing an admirable job in a tough political situation.”

As far as other possible consolidation moves in the satellite-operating industry, Wright said there are going to be “more and more opportunities.” PanAmSat will be highly selective in the potential combinations that it pursues, he added.

“We are not going to just jump at consolidation if it doesn’t make sense,” Wright said.

Vertical Integration

A big part of PanAmSat’s growth area will not come from consolidation but from “vertical integration,” he said.

Contrary to media reports elsewhere, Intelsat has not withdrawn its bid for Eutelsat.

“We have an offer out on the table,” said Susan Gordon, Intelsat’s director of corporate communications. “We would like to move forward. We are looking for some sign from Eutelsat management or its shareholders that they want to move forward. We are frustrated and we would welcome some kind of accelerated process.”

Tom Watts, a satellite analyst with SG Cowen, said he does not expect any organization to be able to buy Eutelsat in its entirety. Eutelsat’s management seems to have launched a “campaign” to block any such acquisition, he added.

British Telecom and France Telecom, two European telecommunications companies that are under financial pressure, likely will try to sell their stakes in Eutelsat independently, Watts predicted.

The question is whether either Eutelsat shareholder can obtain a reasonable price for its holdings, Watts said.

–Paul Dykewicz

(Joseph Wright, PanAmSat, 203/210-8606; Susan Gordon, Intelsat, 202/944-6890; Vanessa O’Connor, Eutelsat, 01 53 98 38 88, Tom Watts, SG Cowen, 212/278-4260)