The satellite industry has been waiting for a wave of consolidation, and the announcement that privately held Intelsat was acquiring publicly traded PanAmSat
Until the merger was broadcast, it had been assumed that Intelsat was interested in acquiring another satellite operator, New Skies
Satellites companies have been moving in and out of the public markets as private investors have been buying up, spinning off, and generally consolidating in a far-flung industry recently plagued by overcapacity. Analysts estimate that most satellites operate at 50% to 60% of capacity and that consolidation, so long as it is accompanied by a reduction in overlapping or duplicate services, could potentially prop up prices. Yet with more than three dozen satellite operators competing against one another, they also say that does not appear to be likely in the immediate future.
When the acquisition is complete, Intelsat will be the world's largest commercial satellite operator, with a fleet of 53 satellites. The company had been a leader in providing telephone and advanced data services, while PanAmSat was a leading provider of cable TV programming. Together they expect to generate more than $1.9 billion in annual pro forma revenues.
Both companies have had interesting histories. Intelsat was set up by a consortium of 147 governments in 1964, was privatized in 2001, and was acquired by a private equity firm in January. It tried to go public three times from 2002 to 2004, each time delaying its IPO because of a lack of investor interest. PanAmSat was founded in 1984 as a private company and was also bought out by a private equity firm just more than a year ago. In March, it became a public company, though the private investors retained 58% of the firm. Both companies are customers of Motley Fool Hidden Gems recommendation Radyne Comstream
While the deal is not expected to bring much opposition from regulators, considering the overcapacity situation facing the industry both in the U.S. and in Europe, speculation is that Intelsat may have to sell the six satellites it purchased from Loral Space & Communications, which is under bankruptcy protection. Along with Lockheed Martin
Jilted paramour New Skies is still a contender to be acquired, interestingly enough, by Loral, which should soon emerge from bankruptcy and regain its Nasdaq listing. Intelsat, which for the fourth time is mulling the possibility of going public, could very well end up acquiring one of them as it seeks to take on dominant European competitors SESGlobal and Eutelsat.
With demand for satellite services swelling and demand for video services expected to grow 10% this year, investors should expect to see even more high-flying mergers and should look at how that affects not only the parties to the deal, but also the ancillary companies -- like Radyne -- that supply them.
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