Intelsat to buy PanAmSat for $3.2bn cash

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Intelsat plans to buy rival PanAmSat for $3.2bn in cash, creating the world's largest satellite operator, a significant step in the consolidation of an industry that is struggling to cope with overcapacity after the investments of the 1990s.

The two operators, which announced the merger on Monday after board approval at the weekend, gave no details of cost cuts or any planned reduction of capacity on their satellites, which will total 53 once the companies merge. Instead, the benefits of the merger were presented in terms of the combined company's strengths.

Intelsat has focused mainly on telecommunications businesses while PanAmSat derives much of its business from video services.

“The combination of Intelsat and PanAmSat creates an industry leader with the ability to provide competitive communications and video services to consumers and businesses,” said David McGlade, Intelsat chief executive, who will continue that role in the combined group.

Analysts said what was important in terms of profitability was whether the combined operator would reduce capacity.

“Most satellites in space are sitting only half to 60 per cent full,” said Christopher Baugh, president of Northern Skies Research. “The key is not just company consolidation but whether they consolidate assets and decommission satellites. Until this happens, we project long-term declines in prices in most markets, regardless of strength in some sectors such as high-definition television.”

According to Bernard Schwartz, chief executive of Loral, one of the biggest manufacturers of satellites, the merger's impact will be on the ability of other satellite operators the biggest of which include SES Global, Eutelsat and New Skies to win new business. “It will create a much stronger competitor, which will be a factor for others in the industry.”

The satellite sector has largely been taken over by private equity investors, who have spent an estimated $9bn on acquisitions in recent years. One factor improving financial performance has been sharp cost cuts at the hands of private equity owners. Another has been the growth in demand for high-definition television and broadband services.

PanAmSat was bought just over a year ago by a private equity consortium for $2.6bn and floated in a $900m initial public offering this year. The $25 a share offer from Intelsat gives a premium of about 40 per cent to the IPO price.

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