SES Buying Out GE

Reuters reports:

European satellite company SES (SESF.LU: Quote, Profile , Research) (SESFd.PA: Quote, Profile , Research) said on Wednesday it had agreed to buy back a 19.5 percent stake in the company from General Electric (GE.N: Quote, Profile , Research) in a deal worth 1.24 billion euros ($1.62 billion).

SES shares shot up to an 11-month high of 14.80 euros and were up 6.4 percent at 14.50 euros at 1600 GMT, with investors relieved of the prospect of GE releasing shares onto the market.

"SES will contribute certain assets and cash to a new company and exchange shares of that new company for GE’s entire holding of 103,149,900 shares in SES," the company said in a statement of a deal it expected to boost earnings.

In a presentation, SES said it expected its earnings per share to rise by over 13 percent in 2007.

SES Chief Financial Officer Mark Rigolle described the deal as "made in heaven" by removing the overhang of GE’s holding that has been depressing SES shares and by restructuring SES’s portfolio after its 2005 acquisition of New Skies.

SES, one of the world’s largest commercial satellite operators, said it would pay the equivalent of 12 euros for each exchanged share, resulting in a total transaction value of 1.238 billion euros.

This could rise by 45 million euros depending on the closing date. SES said the deal was expected to close in the second quarter of 2007.

GE took the stake in 2001 when SES bought GE’s satellite business Americom.

KBC Securities said in a research note that the valuation of the assets appeared fair, and the disposal of certain assets made sense, with some overlap following SES’s purchase in 2005 of New Skies.

"The transaction should be earnings accretive, will increase financial leverage and bring the free float up to 70 percent," KBC said.

In the credit derivatives market, the cost of insuring SES debt against default edged higher, up 2 basis points to 30.5 basis points, a trader said, on fears that the deal could make the company more attractive in a leveraged buyout.

GE will swap its SES shares for shares in the new company, SES International Holding Inc, comprising assets including one satellite, a variety of stakes in related businesses and 588 million euros in cash.

SES will seek to cancel some 86 million of the 103 million C shares it buys back and convert the remainder to FDRs to pay B-shareholders.

CFO Rigolle said the deal would simplify the shareholding structure, with the cancellation of around one in five of its shares.

SES also set new revenue and core earnings (EBITDA) guidance for 2007 to reflect the GE transaction. It sees revenues of 1.568 billion to 1.608 billion euros and EBITDA of 1.041 to 1.081 billion euros.

SES agreed to buy New Skies in December 2005 to boost its presence in Latin America and the Indian Ocean region.

Separately on Wednesday, Asia Satellite Telecommunications Holdings Ltd (1135.HK: Quote, Profile , Research) said its major shareholder Modernday Ltd planned to take the company private for $282 million. Modernday is jointly owned by CITIC and General Electric Capital Corp. (Additional reporting by Richard Barley in London)

Here’s the official news release:

SES (Euronext Paris and Luxembourg Stock Exchange: SESG) announces that it has agreed with GE a EUR 1.2bn split-off transaction in which SES will contribute certain assets and cash to a new company and exchange shares of that new company for GE’s entire holding of 103,149,900 shares in SES, subject to satisfaction of certain closing conditions. As disclosed in March 2006, SES has been discussing with GE a number of options to achieve a structured exit from its remaining shareholding.

GE will exchange its shareholding in SES for shares in a new company, SES International Holdings, Inc. (“SIH”), comprising assets and EUR 588 million in cash, subject to certain closing adjustments. SES has agreed to pay an equivalent of EUR 12 for each exchanged share1, resulting in a total transaction value of EUR 1,238 million. The cash amount and the transaction value may be increased by approximately EUR 45 million depending on the closing date.

The assets of SIH will be:

  • The AMC-23 satellite and its related business
  •  100% of SATLYNX
  •  49.5% of Bowenvale (representing a 34.1% interest in AsiaSat)
  •  19.99% of Star One
  •  5.5% of Orbcomm

Due to the intended US tax treatment of the transaction, third party valuations of the assets were secured.

The transaction announced today allows SES to achieve two important business objectives: to restructure and optimise SES’ portfolio of assets following the SES NEW SKIES acquisition and to remove the GE share overhang.

The acquisition of SES NEW SKIES in March 2006 added to the SES fleet five 100% owned satellites over Asia, Africa and Latin America (NSS-806, NSS-7, NSS-703, NSS-6 and NSS-5). These satellites are in addition to the spacecraft already owned through participations in AsiaSat and Star One, as well as the three other 100% owned assets (AMC-12/ASTRA 4A, AMC-23 and AAP-1), which have comparable coverage and serve similar business purposes to some of the NEW SKIES satellites. This created an opportunity to restructure and optimise SES’ business assets and portfolio of minority participations which led to the decision to divest from the shareholdings in AsiaSat and in Star One as well as to dispose of the AMC-23 satellite operated over the Pacific Ocean Region (POR).

With SES NEW SKIES generating most of its revenues in the government and enterprise infrastructure segment, SES has also re-evaluated the relevance of certain of its satellite end-to-end managed service activities in the enterprise market. As a result, SES decided to divest from SATLYNX, the group’s end-to-end managed service entity. There will now be an increased focus of the SES service business on media and government applications.

SES expects to derive significant corporate benefits from the transaction as it removes the GE overhang which had created the perception of a cap on the SES share price since the announcement that GE intended to divest its interest in SES.

The transaction is expected to close by Q2 2007 subject to the satisfaction of the closing conditions (which include, among others, receipt of certain approvals from SES’ shareholders, a tax ruling regarding the tax treatment of the transaction for GE, and required regulatory approvals).

An Extraordinary General Meeting will be scheduled for March 15th, 2007, in order to allow the Company to buy back all 103,149,900 C-shares, of which 85,958,250 will be canceled. As the B-shareholders have elected to be paid in FDRs in lieu of cash, the remaining 17,191,650 C-shares will be converted into FDRs in order to pay the B-shareholders for their 42,979,125 B-shares. As a result of the transaction, and while maintaining the number of B-shares at 1/3 of the total, the shareholder structure of SES will be simplified.