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When Satmex emerged from bankruptcy six months ago, expectations ran high among creditors that the satellite company would ride a wave of sector consolidation to a record price tag. But with some of the bulge-bracket operators in the industry now in play themselves, pricing for the relatively small Mexican business might come under pressure, sector sources said.
“I am sure the right answer to that question is ‘no’,” said a Satmex bondholder when asked if a near-term sale of Intelsat was good news for the Satmex sale process. Reports emerged last month that Intelsat’s financial sponsor Apollo Management has put the company up for sale.
Intelsat had been leading the list of potential bidders for Satmex that includes Luxembourg’s SES Global, French-Spanish firms Eutelsat/Hispasat, the Canadian and US team of Telesat/Loral and the Brazilian firm Star One, owned by Mexican billionaire Carlos Slim and US conglomerate GE.
A Satmex acquisition “may not be as sexy” as making a pass at Intelsat, with its fleet of 51 satellites and another eight under construction, said a participant in the Satmex sale process. Satmex’s three satellites and USD 42.7m of EBITDA last year just don’t compare favorably, he added.
However, in a consolidating sector, there is something to be said for the “unique entry point to the Americas fixed satellite services market”, according to Morgan Stanley promotional information on the Satmex sale.
“In Latin America, the satellite game is still open. There is no stable oligopoly in the region yet,” said Pacome Revillon, of Euroconsult, a France-based consultancy specializing in telecommunications.
All strategic multinational bidders for Satmex have succumbed to the M&A contagion or are expected to do so in the near term, according to industry sources. However, that frothiness is not necessarily translating into lower bids from all of Satmex’s suitors. A source close to the largest bidder, SES Global, said that Intelsat’s upcoming sale in no affects the way it will calculate its bid for Satmex. “We love the activity,” the same person said.
The Mexican government set a USD 500m minimum purchase price for Satmex but the large fixed-satellite services (FSS) players and Mexican firms that have signed up to bid are willing to pay well above that, a person involved in the process said.
“Satmex’s sale price “could be closer to USD 800m than to USD 500m” said a person close to the process. But, he warned, “there is usually a disparity” between what assets like Satmex are valued at by speculators in the secondary market and prices set by strategic buyers.
Satmex’s stock units were indicated earlier today at between 790 and 810, which roughly implies a valuation of USD 790m to USD 890m for Satmex. Last month, before the news about Intelsat’s sale was widely known, the units were indicated at 725.
An Intelsat M&A transaction could top USD 14bn in debt and equity, an industry source said. Intelsat is large enough to attract the interest of financial buyers – hedge funds and private equity players – who have passed over Satmex because of its small size, an industry source said. Intelsat reports debt topping USD 11bn and cash and available borrowings of slightly over USD 500m.
The Bermuda-based satellite operator only recently concluded its acquisition of Panamsat, Satmex’s biggest competitor in the market for local customers of fixed satellite services. Mexican media giant Televisa is currently the largest operator in that space.
Because Satmex operates in a sector considered strategic by the Mexican government, its voting shares must be controlled by Mexicans. So, any would-be acquirer involved in the global consolidation must stand still long enough to pair up with a Mexican partner and push through a bid for Satmex by 10 May. Final bids are due one week later, a source close to the situation.
A three-person sub-committee of Satmex’s board will decide which bidder it will recommend to Satmex’s board by the third week of May. The committee consists of Mexicans who represent the interests of Satmex’s creditors – mostly US-based hedge funds – who control a 78% economic stake and 43% of Satmex’s voting shares. The process is expected to conclude by 30 May.
The Satmex sale process is still as “robust”, said the person involved in the process. Intelsat “continues to be committed to participating in the process,” he said, adding that the Satmex board was told that Intelsat is “including Satmex in its global strategy”. However, that same person said in the best case, Intelsat would be a weaker, more distracted bidder for Satmex.
The anchors of the Satmex sale process are the Mexican bidders, who have the option of pairing up with a multinational strategic player, or flying solo. One bidder said that, like its peers, his firm had lined up enough financing to bid for Satmex independently. “But we won’t,” he added. “We will pair up.”
One Mexican bidder is Telmex, a company controlled by Mexican billionaire Carlos Slim, that has teamed up with AT&T and GE Capital. Miguel Aleman, a former shareholder of Televisa has begun a courtship with Eutelsat. If Intelsat-Panamsat stays in the game, it will team up with Pegaso shareholder Alejandro Burrillo, the source close to the process said.
That leaves non-Mexican bidders SES Global and Telesat-Loral circling around Televisa, a small satellite company called Medcom Sat owned by Clemente Serna, and Moises Saba, a shareholder in Mexico’s number two network TV Azteca. Saba is a former partner of TV Azteca’s controlling shareholder Ricardo Salinas Pliego in his wireless telecommunications company Unefon. Other dark horse Mexican entities could still be joined up with SES or Telesat-Loral.
Satmex now reports USD 378m in debt (reduced from its pre-restructuring reported total of USD 523.4m). The company offers three prime orbital slots and transponder capacity on one hyper-modern Loral-built powerful satellite with a footprint that covers the entire western hemisphere. Its two other satellites are nearing the end of their useful life.
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