WASHINGTON, D.C. -Large satellite operators looking for merger partners are unlikely to forge deals anytime soon.
For example, Eutelsat’s shareholders appear content to wait until valuations rise before considering the sale of their stakes in the Paris-based satellite operator.
Strong differences of opinion among executives of fixed satellite services (FSS) companies surfaced about the merits of consolidation, during a featured panel discussion at SATELLITE 2003 held here last week.
Giuliano Berretta, chairman and CEO of Eutelsat, warned participants about the clash of cultures that could occur when two large companies attempt to combine. Instead, the model that Berretta said makes the most sense is for a larger company to acquire a smaller one.
A clash of cultures can require years for a merger to show results, Berretta said. “Today, sometimes we can only wait months.”
Other executives of global satellite operators voiced a variety of opinions about whether consolidation would happen and whether it was a positive or negative development.
Romain Bausch, president and CEO of SES Global [SES.LU], said he viewed mergers between operators that are involved in the same business segments as the best move.
In contrast, Intelsat CEO Conny Kullman said that looking for complementary capabilities, rather than overlapping ones, was the wisest course. Savings of $250 million could be gained by avoiding the launch and deployment of a duplicate satellite by a competing company, he said.
Dan Goldberg, CEO of New Skies Satellites [NSK], worried that talk of consolidation had received a “disproportionate amount” of industry airtime. As a much smaller competitor, New Skies still faces the same market factors as anyone else, he said.
Elusive Eutelsat
Attempts by Intelsat and PanAmSat Corp. [SPOT] to acquire Eutelsat during the past six months have fizzled out after cash-craving Eutelsat owners Deutsche Telekom and France Telecom found private investment groups to buy their stakes. When completed, those sales will replace two of Eutelsat’s larger telecom shareholders with private investors seemingly willing to let current management continue to grow the business.
Eutelsat’s supervisory board recently removed the sale of the entire company from its agenda after various agreements were reached for equity stakes to change hands, Berretta said.
“From our perspective, [Eutelsat] is off the table,” Intelsat’s Kullman said. “New shareholders are likely to sit on their investments for some time,” he said. His assessment is based on direct conversations he recently had with senior officials representing Eutelsat’s new investors.
A recent Merrill Lynch report on the satellite industry highlighted Eutelsat as one of the industry’s only operator that is growing its revenues.
Intelsat’s best chance to acquire Eutelsat may have occurred during the third quarter of last year when four of Eutelsat’s largest shareholders were speaking with one voice about wanting to sell their stakes. Two of them subsequently struck separate deals.
Those Eutelsat stakes were sold for less than Intelsat was willing to pay, both in valuation and cash component, Kullman told SATELLITE NEWS. Intelsat, however, wanted to obtain a controlling interest in Eutelsat, not make a strategic investment, he said.
PanAmSat pulled out of the derby to buy Eutelsat last month after numerous obstacles arose that blocked a potential sale.
The top financial officer of Eutelsat and New Skies Satellites projected during another panel discussion at SATELLITE 2003 that their companies would grow revenues by at least 6 or 7 percent this year.
Eutelsat’s top-line performance rose 7 percent last year and is likely to hit the same level again this year, said Charles Hindson, Eutelsat’s chief financial officer.
On the satellite-manufacturing front, consolidation talk is continuing but it remains to be seen how far things will go beyond talk. Europe already has been the scene of consolidation on the manufacturing side in recent year.
Slackened demand from customers for new satellites may well “justify” further consolidation between European satellite manufacturers Alcatel Space and Astrium, said Pascale Sourisse, chairman and CEO of Alcatel Space.
A possible merger involving Alcatel Space and Astrium has yet to move beyond the speculation stage, industry sources said. Alcatel Space is profitable and ranks as the largest satellite builder in Europe.
“Our situation is quite sound,” Sourisse said. However, the satellite manufacturing market environment was “very tough” in 2002 and is expected to improve just slightly in 2003, she added.
–Paul Dykewicz
(Vanessa O’Connor, Eutelsat, 33 11 53 98 38 88; Susan Gordon, Intelsat, 202/944-6890; Mark Roberts, SES Global, 352 710 725 490; Dan Goldberg, New Skies, 31 (0)70 306 41 00)
