Satcom Poker



Sure, it was a good day at the office for Apollo Management LP in the deal announced today, where EchoStar is buying Hughes Communications…

Apollo’s SkyTerra affiliate first bought into Hughes back in 2004, when then-owner DirecTV — frustrated in efforts to sell Hughes outright — agreed to strike a 50-50 joint venture with Apollo to run the business.

As part of that deal, Hughes was valued at $360 million and Apollo plunked down just $50 million in cash for the stake in Hughes. Then in 2006, Apollo bought out DirecTV for $100 million.

Today, at the price EchoStar agreed to pay of $60.70 a share, or $1.35 billion excluding debt, Apollo stands to make roughly $753 million, based on its 57.4% disclosed stake in Hughes as of the end of 2009.

Pretty crafty deal, as Hughes does very well with using satellite capacity to make money. They’ve designed and manufactured their own modems, and they’ve even launched their own spacecraft in the all-Ka-band Spaceway 3. EchoStar has excess capacity, thanks in part to digital compression over the years — and they probably leased too much capacity from SES over the last 8 years or so.

With AMC-5 at 79° West not being replaced (running-on-empty AMC-2 is in the slot now), and AMC-1 being replaced by  SES-3, which will not have a 26° CCW offset on the Ku-band side. What does that mean? All the Ku-band traffic on 79° West and 103° West is "in play" and may need to move. Hughes is in a good position to grab some business. Where’s that traffic going?

I’m thinking EchoStar stands to gain some long-term contracts for their FSS birds. Add to that the solid experience Hughes has had with Ka-band over the last couple of years, and you’ve got a good business-enhancing transaction here.

By the way, SES-3 will have cross-strapping between payloads, which nobody gives a hoot about in North America.

Make satcom services American again. We love you, Charlie!