Liberty and EchoStar to Buy Intelsat?

Is it roundup time on the satcom ranch? Might be, partner. Time to drive these little doggies to HDTV city.

Here’s a market-shaker via today’s Wall Street Journal (subscription):

Liberty, EchoStar Plot Intelsat Bid
Joint Offer Would Set Up Unusual Pairing of Rivals Looking to Reduce Costs
June 14, 2007; Page A3
Liberty Media Corp. and EchoStar Communications Corp. are preparing a surprising joint offer for satellite-communications provider Intelsat Ltd., which is accepting final bids for its auction today, according to people familiar with the matter.
The pairing represents a bold cooperation between satellite-TV broadcaster EchoStar and media holding company Liberty, which is slated to take control of competing satellite-broadcaster DirecTV Group Inc. in the coming months. The two firms still could decide against making a formal bid.
Intelsat is expected to draw bids of $4.5 billion to more than $5.5 billion, according to people familiar with the auction. The company already supports about $11.5 billion in debt, put on the company after a series of mergers and one-time dividends paid to its group of four private-equity owners.
If it succeeds, the joint bid would create a highly unusual partnership between two strong-willed rivals who run satellite-to-home broadcast systems that currently compete with each other. But the two have been exploring ways to work with one another, according to people familiar with their discussions. Their main goal is to reduce operating costs, these people say, and a substantial amount could be cut from both firms with an Intelsat purchase.
The satellite-broadcast segment is different from the satellite-services business, where Intelsat is the industry leader. Intelsat provides wholesale capacity over 51 satellites, and its best customers are cable-television providers. The businesses rely on separate fleets, ground facilities and capital-investment schedules.
But there are similarities between the designs and technical details of the satellites used for both purposes. Last year, EchoStar Chief Executive Charles Ergen surprised many on Wall Street by projecting an investment of more than $1.6 billion to dramatically expand EchoStar’s satellite fleet, with some of the proposed satellites slated to lease wholesale capacity.
Federal regulators are bound to carefully scrutinize any such partnership, partly because the cable industry traditionally has considered satellite broadcasters as archrivals when it comes to attracting subscribers. The bid also could pave the way for closer ties between DirecTV and EchoStar, or possibly even lead to a merger proposal that consumer groups and other critics have long asserted would hurt consumers.
People familiar with the process said Intelsat’s current private-equity owners believe that because Intelsat is in a different business than EchoStar and DirecTV, the joint bid doesn’t pose antitrust hurdles. Under this argument, cable operators would retain existing long-term contracts for satellite capacity, or they could switch to fiber lines as an alternative.
Antitrust questions are likely to come up in the course of the auction, which could conclude as early as this weekend. Private-equity firm Blackstone Group, which prompted the auction, isn’t expected to bid, according to two people close to the process. Providence Equity Partners, another private-equity firm, is expected to participate, as well might a group of other players such as Carlyle Group and Australia’s Macquarie Bank Ltd., according to people familiar with the auction.
But the most intriguing combination is clearly the Liberty-EchoStar group. Over the years, Mr. Ergen has repeatedly broached the idea of forming a limited joint venture between his Dish Network and rival DirecTV. In the past few months, Liberty Chairman John Malone and Mr. Ergen have met several times to discuss ways to develop broader cooperation, according to people familiar with the discussions, including gaining access to additional satellites already in operation.
EchoStar, Liberty and Intelsat declined to comment.


  • Rocco Fanucci says:

    Another possible bidder has emerged, the former part-owners of the Pubmaster/Punch Taverns chain in the U.K., as we read in the Times of London:

    The London-based private equity firm BC Partners was close to finalising a deal to buy a majority stake in Intelsat last night in a move that values the satellite operator at $16.5 billion (Pounds 8.3 billion), including debt.

    The deal will be BC Partners’ biggest acquisition and its first of a company based in the United States. It is also evidence of the British firm’s plans to expand overseas and compete more strongly with larger rivals such as Permira, CVC Capital, Blackstone and Kohlberg Kravis Roberts.

    BC Partners’ offer trumped a competing bid for the operator by a consortium of Liberty Media, the American media group, and EchoStar Communications, a satellite pay-TV operator. However, that consortium could yet make a higher offer.

    Under the terms of the deal it is understood that BC Partners will pay about $5 billion in cash for the satellite operator and take on about $11.5 billion of its debt. It will stump up between $2.5 billion and $3 billion of the cash, with the remaining portion coming from the existing private equity owners, who are selling down their stake but will remain minority shareholders.

    Intelsat, a global satellite network set up in 1965 by the national telecom operators of several Western countries, is being sold by a group of four buyout funds. Apax Partners, Permira, Apollo Management and Madison Dearborn Partners bought the company for about $3.1 billion in 2004. They added PanAmSat, a rival operator, for $3.2 billion in 2005.

    Intelsat, based in Washington, operates 51 satellites used by cable companies, broadcast networks and governments for distributing video programming. It leases capacity to television companies rather than providing content itself.

    The company has about 35 per cent global market share and last year reported $1.7 billion in revenues and adjusted earnings of $1.3 billion. Just under half its business is in North America, with 15 per cent of profits driven by Europe and 17 per cent from the Middle East and Africa.

    Until now BC Partners has confined itself to European deals, but it wants to expand its efforts overseas. It has opened an office in New York to go after buyouts in the region.

    In Britain it owns Fitness First, the gymnasium chain, and General Healthcare Group, the private hospital company. It sold its stake in Trader Media, the Auto Trader owner, and the pub chain Pubmaster recently.
    BC Partners has said that it plans to acquire 15 to 20 European businesses worth more than Euro 15 billion over the next five years.

    The acquisition comes at a time of intense scrutiny of the private equity industry over tax breaks, lack of transparency and excess leverage.

    Top, secret

    • BC Partners takes the prize for being the most secretive private equity firm, yet it has spent about Euro 82 billion buying and investing in 111 companies over the past 18 years
    • It has offices in London, Paris, Milan, Hamburg and Geneva, employing more than 40 professionals
    • Its top dealmaker in London, Simon Palley, recently said he did not see leverage levels coming down, but falling profits would lead to "a bit of soggy equity"