A seemingly minor move by New Skies Satellites Aug. 25 could indicate that the company is streamlining its operations to help make an expected acquisition by Intelsat occur more smoothly, industry analysts said.

New Skies announced it is selling its Australian subsidiary New Skies Networks PTY Ltd., which owns and operates two teleports in Adelaide and Perth, Australia, to Multiemedia Ltd. for $10 million. As part of the deal, New Skies will purchase teleport services from Multiemedia, while Multiemedia, an existing New Skies customer through its Newsat satellite services division, has agreed to procure additional satellite capacity on New Skies’ NSS-6 satellite. Newsat provides satellite broadband services on NSS-6 in Australia and the Middle East. The transaction is expected to close in October.

The announcement comes on the heels of a mid-August report in the Wall Street Journal that Intelsat Ltd. has been in talks “for weeks” to acquire New Skies Satellites for as much as $1.3 billion. The word of such discussions did notsurprise many industry observers, but the Australian deal suggests that New Skies and Intelsat could be closer to announcing a deal, industry analysts said.

“The latest move suggests that this a piece of the business that Intelsat is not interested in,” Roger Rusch, president of Telastra Inc. “It may very well be that Intelsat is saying we might be interested in the rest of your company but that is a piece we don’t want. If New Skies can sell [this subsidiary] for some kind of a price, the overall value of the company is greater because Intelsat is probably not willing to give them any significant amount for it.”

Eileen McGowan, product manager of FCCFilings.com, agreed that the Australian teleports were sold to make New Skies a more attractive takeover target, noting that “if, and more likely when” New Skies and Intelsat merge, these teleports likely would not be needed because Intelsat likely has the earth stations is needs to provide global coverage.

New Skies “has to make itself attractive to the financial investors,” McGowan said. “Showing there is $10 million more in the bank and not having this redundant asset that someone else will have to sell later, I think makes it a better deal for the acquisition plan. Multiemedia agreeing to purchase additional satellite capacity as part of its transaction “sweetens the deal for Intelsat to acquire New Skies. New Skies selling the Australian asset is another step closer a deal being announced.”

“Why else, if you are in the middle of [a merger discussion], would New Skies make a move like that” if it were not planning on merging, John Edwards, space systems analyst for Forecast International Inc., said.

Right On (PE) Schedule

The timing of the reported Intelsat-New Skies discussions also give credence to a possible deal, said Edwards. The Blackstone Group’s purchased New Skies in June 2004 for $956 million and could be ready to exit since private equity people buy companies and hold the for a short period of time.

“Everyone knew Blackstone wasn’t going to hold onto them for very long,” Edwards said. “That is the [modus operandi],” he said, noting that holding on to acquisitions is not profitable for the private equity owners in the long run, especially if the owners have to pay out to keep the companies going. “The amount of profit you get out of it diminishes significantly, so these guys hold onto [the acquired company] for about a year and half to two years max and then pop it.”

That time frame would put all of the major private equity owned satellite operators to execute their respective exit strategies. “This next round seems imminent,” Edwards said.

“I am curious to see what happens with Panamsat and Eutelsat in the next few years,” Edwards said. In particular, he singled out Panamsat for “bucking the trend” of what a private equity owner typically does: getting the finances in order and flipping the company. Panamsat, under private equity owner KKR, has ordered satellites and acquired an on- orbit satellite and orbital slots. This kind of capital investment has yet to be mirrored by other private equity-satellite operators, suggesting that KKR may hold onto Panamsat longer than a typical private equity owner would hold onto a company. But Edwards doesn’t expect KKR to hold onto Panamsat indefinitely.

“From what I have seen about these private owners, I know why they get companies and why the turn them over, but it doesn’t make any sense to me for them to hold onto an asset like this. Panamsat is valuable. Somebody out there wants Panamsat, but whether they can come up with the capital to make the purchase [is questionable].”

Is Loral Next?

While the talk of a sale of New Skies to Intelsat is not surprising, the big question is whether this will kick off the wave of consolidation industry observers have been predicting and who will be involved in the potential run.

“If Intelsat buys New Skies, what other consolidation are we going to see?” Edwards asked.

Early talk centers on Loral. With a bankruptcy court approving the company’s reorganization plan the company is very close to emerging from bankruptcy.

“Loral is kind of interesting,” Edwards said. “It is getting back in shape and its satellite manufacturing unit is doing great. I don’t see them being bought, but they could shock some people and pick somebody up. I think Loral is going to stick around by itself. I could see that. But if anyone is going to buy them, it would be Intelsat.”

“Loral is the next logical organization where something needs to be done,” Rusch said. “Loral will be completely out of bankruptcy in a few months and the new owners will be working hard to figure out what to do with it.”

–Gregory Twachtman

(Eileen McGowan, FCCFilings.com, 301/347-3431; John Edwards, Forecast International, 203/426-0800; Roger Rusch, Telastra, 310/373- 1925)