SES Global S.A.‘s announced acquisition of New Skies Satellites Holdings Ltd. will keep SES solidly at the top of the Fixed Satellite Services (FSS) industry along with the merged Intelsat-Panamsat, according to industry analysts.

SES Global announced Dec. 14 that it plans to acquire New Skies for $760 million in cash and the assumption of about $400 million in debt. The acquisition, which is expected to be completed in about six months, will put SES Global as the solid number two behind the new Intelsat in terms of leased capacity, according to research from Northern Sky Research, and the two FSS behemothswill be about equal in terms of market share from a revenue perspective.

SES cited synergies between New Skies’ five spacecraft that provide coverage in India, the Middle East, Africa, and Latin America with SES Global’s presence in Europe and North America as the driver of the deal.

The acquisition makes sense primarily because of the satellites and broadcasting slots that New Skies owns, as well as its strong Latin American presence that will compliment SES Global’s stake in Star One, said Christopher Baugh, president of Northern Sky Research. “There are parts of Asia [that New Skies is] strong in that SES is not as strong in. It compliments their European business. It compliments the U.S. business with Americom. It strengthens their position as the number one or number two operator, depending on how you look at it.”

Additionally, SES said New Skies’ business mix enhances SES’ video-centric core business by strengthening its video, data and government segments. In the government services market, New Skies’ position as a satellite capacity provider to a range of government customers is a complement to the SES Americom Government Services. The transaction also will allow SES to reduce its reliance on third-party capacity for government services in certain regions of the world.

“Until now [SES Global] tended to be more regionally and land mass focused,” Roger Rusch, president of Telastra Inc. told Satellite News. “New Skies brings the dimension of transoceanic service and some pretty good satellites.”

Price Raises Some Eyebrows

While the transaction did not come as a shock to the industry, the valuation of New Skies was somewhat of a surprise, Rusch said. “There was a rumor that Intelsat would buy New Skies,” he said. “Then the Wall Street Journal said the SES price would be $1.1 billion, so I looked at the value of other operators. My conclusion was that it seemed unlikely that New Skies was worth $1.1 billion.”

Rusch estimated the value of Eutelsat, which reported nearly five times the amount of revenue of New Skies in 2004, to be about $2.9 billion. Loral Skynet, which is comparable to New Skies in terms of revenue and transponder capacity, is valued at less than $500 million, he said.

“SES must perceive that the growth prospects for the New Skies satellites are much better than for the industry as a whole,” Rusch added. “Furthermore, it must have identified significant consolidation efficiencies. That would mean substantial cutbacks at New Skies. Alternatively we may have a new wave of speculative pricing that applies to some satellite transactions.”

Private-equity investment firm The Blackstone Group purchased New Skies in June 2004 for $956 million, and performed an initial public offering in May. The satellite operator had been the subject of acquisition rumors since August, when Intelsat was the rumored favorite prior to its announced Panamsat acquisition. This was followed in November by reports that New Skies rebuffed an SES Global offer. All the time, New Skies was just holding out for the best offer, officials said.

“In the last few months, we have been approached by a number of strategic and financial buyers,” New Skies CEO Daniel Goldberg said during a Dec. 14 conference call with analysts. “The company’s favorable valuation in the number and nature of buyer interest indicated to the board that current market conditions created a unique opportunity to deliver significant value and liquidity to our shareholders. Accordingly, we held discussions with this group of potential buyers and reached out to a number of others to ensure that all likely potential acquirers were aware that we were considering our strategic alternatives.”

Goldberg declined to name any other bidders for New Skies.

Little Change To FSS Market

This transaction is expected to have little impact on the current state of the FSS market from a customer perspective. “The impact of something like this is not going to be an immediate impact,” Baugh said. “If you are a buyer of capacity, it is one less company you can go to.”

But whether that will translate to higher prices remains an unknown at this point in time. “We are hearing that prices haven’t changed much [following the recent wave of consolidation] and the situation is fairly static,” Baugh said. “There are going to be major staff reductions from…operations, marketing and sales. You don’t need that many people doing the same job. But in terms of the customer, I don’t think you will see that much of a difference.”

There likely will be noticeable impact on the satellite manufacturing side, Baugh said, adding that the bigged impact could be seen when the satellite replenishment cycle beings. “Manufacturers are getting nervous about this, of course.”

However, Rusch was a bit more hesitant to paint a dark picture of the future for satellite manufacturers. “Everyone thinks that the consolidation will somewhat reduce the orders for new satellites,” he said. “However, the replenishment market is still quite strong at present.”

–Gregory Twachtman

(Christopher Baugh, Northern Sky Research, 617/576-5771; Roger Rusch, Telastra, 310/373- 1925)