Hughes to Buy Gilat?

Globes Online reports on some major movement in the satcom industry:

Gilat Satellite Networks Ltd. (Nasdaq: GILT; TASE) has reputedly received an offer from Hughes Communications Inc. (Nasdaq:HUGH), the company’s US rival. This is not the first time that Hughes has expressed an interest in Gilat; in 2004, the companies were in negotiations for a possible a merger with Hughes Network Systems, which ultimately did not materialize. The failure led to the resignation of Gilat CEO Oren Most. Both Gilat and Hughes Network Systems manufacture very small aperture terminals (VSAT) for satellite communications.

Haaretz.com provides further analysis: 

Gilat has become a hot item. For two years the company’s results have been picking up and now the satellite division of Rupert Murdoch’s Hughes is bidding to buy the Israeli firm for a high $ 12 per share. …

Hughes’ satellite division is Gilat’s arch-rival in the United States. The two are considered leaders in the U.S. satellite communications industry.

Gilat operates in the U.S. through its subsidiary Spacenet, which reported an upswing in business in the second quarter of this year.

Assuming that Gilat’s board of directors decides to accept the offer, the transaction will require approval of the U.S. Federal Trade Commission, which will consider whether a merger of the two companies would negatively impact the market’s customers.

Hughes is controlled by media baron Rupert Murdoch and the Apollo Management fund, one of the investors in York Capital Management, which is Gilat’s largest shareholder with 20.8 percent. 

On Monday, we previewed yesterday’s launch of Hughes’ Spaceway 3 satellite, which expands Hughes’ ability to provide high-speed, two-way communications for Internet, data, voice, video and multimedia applications. The acquisition of Gilat would enable Hughes to increase its provision of such services to Africa and South America, where Gilat is particularly strong (they signed a deal just last month to provide IP and VOIP services to Tanzania).

The end result of the merger would position Hughes to become a major competitor to satellite internet provider WildBlue.

Street Insider first picked up news of the acquisition on Monday, while Asbury Park Press, which is also reporting the deal, cites Israeli tabloid Yedioth Ahronoth.

The offer comes on the heels of solid Q2 results from both Hughes (reporting a 12% revenue increase over Q1)  and Gilat (opens in PDF).

We’ll keep you updated on the details of the acquisition as they become available. To subscribe to the Business Network blog via RSS, click here.