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EchoStar Adds Intrigue To Loral Auction

By | August 25, 2003

      EchoStar Communications [Nasdaq: DISH] is livening up the bankruptcy court auction for Loral’s North American satellite assets by making an informal proposal to top Intelsat’s $1 billion offer.

      Loral entered into voluntary Chapter 11 bankruptcy court protection in July and agreed to sell its North American satellites and orbital slots to Intelsat at the same time.

      The EchoStar offer is for all of Loral’s satellite assets, including those satellites and orbital slots outside of North America, along with its Space Systems/Loral satellite manufacturing subsidiary. EchoStar currently manufacturers its own set-top boxes but has never been involved in the construction of satellites other than placing orders as a customer.

      “EchoStar’s interest in the fleet is not surprising, given moves they have made in recent years to launch domestic Ku- and Ka-band satellites,” said Tim Logue, a consultant with the Coudert Brothers law firm. “What is extraordinary is their apparent interest in Space Systems/Loral’s satellite manufacturing operation as well. EchoStar has a legacy of dish manufacturing, but they would find satellite manufacturing to be a very different business than anything they have done previously. It would almost be like going from chicken farming to making handmade Faberge eggs.”

      Intelsat still appears to be in the driver’s seat but this has not deterred EchoStar from entering into a tire-kicking phase with Loral.

      Wall Street analysts expressed uncertainty about whether EchoStar would turn its informal bid into a firm one. However, EchoStar appears interested in entering the bidding process to conduct due diligence that would allow it to assess the value of Loral’s assets.

      Under the bidding procedures established Aug. 18 by the bankruptcy court, Loral would need to evaluate any offer it receives from EchoStar or any other bidder, explained Vijay Jayant, a satellite analyst with Lehman Brothers.

      EchoStar would need to outbid Intelsat for Loral’s North American satellite assets by at least $28 million. The reason is that Intelsat’s deal calls for it to be paid a $20 million breakup fee and $8 million in expenses if another bidder wins, Jayant added.

      With the acquisition, EchoStar could gain additional capacity and orbital slots by acquiring Loral’s assets, including its underutilized satellites, according to Benjamin Swinburne, a satellite analyst with Morgan Stanley.

      Long-term, the limited number of orbital slots available to serve North America would constrain the growth of U.S. satellite TV operators, Swinburne wrote to his clients in an Aug. 20 research note.

      Susan Gordon, Intelsat’s director of corporate communications, said it was not surprising that other companies are interested in Loral’s assets. Indeed, Intelsat considers the assets valuable and already has put forward a firm bid that has been approved by its shareholders.

      “We have conducted due diligence and our offer is fully financed,” Gordon said. “We are looking forward to moving ahead with this deal.”

      —Paul Dykewicz

      (Tim Logue, Coudert Brothers, 202/736-1816; Vijay Jayant, Lehman Brothers, 212/526-6019; Benjamin Swinburne, Morgan Stanley, 212/761-7527; Susan Gordon, Intelsat, 212/944- 6890)

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