Many people across the nation probably spent a good portion of March 17 clicking on various Internet sites to get the latest college basketball scores as “March Madness” officially began. But for satellite industry observers, a different kind of March Madness was taking place. Rather than looking at scores from the first round of the NCAA Division I Men’s Basketball tournament, they were looking at the price of Panamsat‘s stock, which had its initial public offering that same day. And the result was not as encouraging as some would have hoped.

Panamsat, which now is traded on the New York Stock Exchange under the ticker symbol “PA,” hit the market with an initial price of $18 per share, raising $900 million in capital for the company. But the stock never traded that high during the first day of trading. The stock’s price opened at $17.50, and dropped early to a low of about $16.95. The stock price recovered somewhat during the day, getting as high as about 17.45 before eventually closing out the first trading day at 17.35.

Panamsat President and CEO Joseph Wright was not available to Satellite News for an interview on March 17 and an e-mail to him seeking comment on the opening day of trading was not returned. In a video interview posted on the CBS MarketWatch Web site, Wright said, at the time of the interview, that he was unaware of the trading activities of the day and had no comment on the decrease in price that occurred. The time at which the interview was conducted was not given.

Not Ready For Prime Time?

Prior to the IPO this week, concerns already were being voiced by at least one observer. In its “Featured IPO” for the week of March 14, Renaissance Capital said on its http://www.ipohome.com Web site that its “primary gripe related to the offering is the large amount of money that the leveraged buyout firms and management stand to receive. The company paid a $246 million dividend in October 2004 and plans to issue another $200 million dividend upon the completion of the offering. While sizeable payouts are typical of most buyout transactions, we took issue with both the sheer size and manner in which the firms are cashing in. Besides the extremely quick turnaround on the deal, the company actually issued additional debt in order to fund the initial $246 million dividend. As a result, IPO investors are left with a company that is even more leveraged today that it was at the time of its August 2004 buyout.”

“Additionally, the company’s revenue has been largely flat throughout the past several years, and it faces challenging growth prospects going forward,” Renaissance Capital said.

Roger Rusch, president of consultancy TelAstra Inc., told Satellite News, “We have been told that private equity companies have a longer window for returns than stock traders who want to make a profit within a year. The surprise to many is that the private equity companies are selling off sooner than most had expected or predicted.”

J. Armand Musey, a partner with boutique investment banking firm NearEarth, echoed some of those sentiments. “When Panamsat was purchased by KKR, no one expected them to be able to turn this thing around and go for an IPO as fast as they did. It is pretty impressive that they were able to do this so quickly. But ultimately they did not quite get the value they hoped and maybe they should have waited another quarter. If they had more time to demonstrate a sustained turnaround, another quarter or so under their belt, that would have helped.”

Other factors also could have contributed to the opening day dip in the stock price, including a March 17 article in the Wall Street Journal and other high profile events within the sector throughout the past six months.

“I think the Panamsat IPO was blind-sided by [that article],” Rusch said. “The article concluded that the private equity companies bought the satellite operators with very little equity. These highly leveraged transactions required the issuance of large amounts of debt.” Rusch noted that some of the proceeds were going to dividends to owners and management. “So, it appears that the private equity firms have skimmed off the cream. Consequently, the IPO did not result in a spectacular run-up. When Panamsat is fully back in public hands, the company can be managed for business continuity rather and extraordinary profit taking.”

At least one industry insider was not ready to call the IPO a failure and an indication of rough roads ahead for the satellite industry.

“One should not panic or jump to conclusions on something like this,” an industry insider told Satellite News on background. “I think a stock like Panamsat probably will do fine in the long run. [The opening day’s results were] not unexpected given the circumstances of this particular offering’s birth. It is not that unusual. In my recollection, many of the tech IPOs started out the same way. Some things like Google will come out of the box and climb like a rocket, but most of them that I recall went this same way. I think you have to give perspective on this in the sense that it went down 3.6 percent [from its opening price of $17.50]. It did not go down 60 percent.”

Musey also noted that the recent satellite anomalies at Intelsat may have investors acting a bit more cautious.

Fate of Upcoming IPOs

Probably the biggest question that remains unanswered for the moment is what will happen to New Skies, as that company is in the on-deck circle waiting to launch its IPO.

“I do not know if [today’s IPO results] will push the deal off,” Musey said “Clearly, New Skies is looking at this and it is not a great omen. The company may have to rethink its pricing a little bit. And depending on what kind of adjustment it has to make, some of the shareholders may have second thoughts about an IPO.”

“I think other companies will rethink an impulsive IPO and try to understand the market forces before proceeding,” Rusch added. “Companies like New Skies may go ahead or hold back, but the Panamsat IPO will serve as a reference point.”

–Gregory Twachtman (J. Armand Musey, NearEarth, 646/452-9931; Roger Rusch, TelAstra, 310/373-1925)