Wall Street Analysis

By Tom Watts, SG Cowen Securities

The satellite industry has been waiting for Intelsat’s initial public stock offering (IPO) for almost three years.

In March 2000, Congress passed the Open Market Reorganization for the Betterment Of International Telecommunications (ORBIT) Act that required Intelsat to go public. So far, Intelsat has taken every possible step to satisfy ORBIT. The company’s recent public debt registration marks one more move in the right direction. In the end, though, weak public equity markets may point Intelsat in other directions.

The ORBIT Act was intended to level the playing field between Intelsat and privately held fixed satellite services (FSS) operators, such as PanAmSat Corp. [SPOT] and SES Global [SES.LU]. The Act set out a number of requirements for Intelsat, most of which Intelsat has satisfied. Only two requirements remain:

• Independence – Intelsat is required to substantially dilute its aggregate ownership.
• IPO – the company was originally required to go public by October 2001. The date was extended to December 31, 2002, then to June 30, 2004.

The current conditions of the capital markets make both these requirements difficult to satisfy. However, we believe the act’s number one intention was dilution and that Intelsat can achieve that goal by finding buyers for some of the stakes now held by former Intelsat signatories who have become the current owners. Private investment funds are potential buyers of these stakes and currently could purchase them on favorable terms. Expect to see such deals in the coming months.

Of course, potential buyers would require a path to liquidity. That requirement points to Intelsat achieving a public market for its shares over time. However, the company could achieve liquidity through a number of paths, including an IPO, a merger with a public company or a sale. Another extension of the ORBIT Act’s IPO deadline could allow Intelsat to wait until growth in the FSS market rebounds from its current slowdown and the IPO market recovers.

Tom Watts is a managing director and satellite analyst at SG Cowen Securities. He can be reached by phone at 212/278-4260 or by e-mail at tom.watts@sgcowen.com. Readers should assume that SG Cowen Securities Corp. and/or its affiliates intend to offer services in investment banking to the above referenced companies within the next three months, and to seek compensation for such services.