By Paul Dykewicz, PBI Media LLC

The unspectacular first quarter financial results of New Skies Satellites N.V. [NSK] last week likely highlighted part of the reason why its CEO Dan Goldberg opted to hire premier Wall Street investment banking firm Goldman Sachs to explore the company’s “alternatives.”

Another large part of the probable reason was revealed when he offered no optimism for a reversal of the current overcapacity problem in the industry that is keeping transponder prices down and that is preventing New Skies from leasing more than 49 percent of its in-orbit capacity.

Speculation that New Skies, of The Hague, The Netherlands, could follow the path forged by the sale of Wilton, Conn.-based PanAmSat [SPOT] last month appears to be fueling the rise in its stock price this year.

Since the company went public, New Skies has struggled to boost its stock price. In the past, management reacted to what it felt was an under-valuation of the company by buying back shares.

The company’s latest quarter results showed that any further lift to the company’s stock would not be coming for operations anytime soon. If anything, days like April 28 — when the stock price of New Skies rose 11 percent — give further impetus to speculation that the company could be sold while its valuation of roughly $7.70 a share is close to a 52-week high of $8.

Revenues in the first quarter were consistent with the same period last year, although down from the previous quarter, Goldberg said during a conference call with analysts.

Goldberg, a lawyer by education, did not mince his words during the conference call. Nor did he sugarcoat reality.

Despite reducing discretionary spending, operating expenses – excluding depreciation – rose $2.4 million compared with first-quarter 2003 due to higher in-orbit insurance costs from NSS-6 and -7 along with certain one-time costs items related to exploring “a strategic opportunity” in the quarter. That strategic opportunity was the company’s unsuccessful effort to buy its bigger rival PanAmSat.

The next step for New Skies likely will not be trying to muddle through quarter after quarter during weak market conditions with virtually no likelihood of a rebound anytime soon.

A look at the bottom line of New Skies in the recently completed first quarter showed an increase in operating expenses that rose to $51.3 million from $45.9 million in the same quarter last year, when including higher depreciation charges arising from the launch of NSS-6. The result was reduced net income that fell to $0.1 million, down from $3.6 million in 2003.

Prospective buyers of New Skies certainly would be enticed by its rising free cash flow, which was nearly three times higher in 1Q04 than it was in the same period a year ago. It reported positive free cash flow of $27.2 million for the three-month period ended March 31, compared with $9.7 million in the same period in 2003.

In addition, since the start of the year New Skies has secured a number of opportunities that could be of substantial benefit this year and beyond.

This year, New Skies took the unusual step of accepting a $32 million payment from a competing operator in return for not launching a satellite at a nearby orbital slot that has the potential to cause interference problems. In that agreement, New Skies resolved with Intelsat a number of “longstanding matters” associated with the coordination of certain orbital locations in the Atlantic Ocean region, the Indian Ocean region and over the Americas, Goldberg said. (Editor’s note: The New Skies Chief Financial Officer Andrew Browne previously held the same post at Intelsat. Those past ties may have helped lead to the settlement.)

With only a limited number of orbital slots to use as bargaining chips, that deal appears to be a one-shot agreement. Such one-time transactions are temporary aids but they do not assure a long-term future of growth and prosperity.

For the right potential buyer, New Skies could be too enticing a target to pass up.

Paul Dykewicz is senior editor and senior analyst of Satellite News. He can be reached at 301/354-1769 or at [email protected].