It is the nature of any dynamic, vibrant industry to have a steady stream of takeovers as trade players seek to gain scale through acquisitions, and institutional investors are drawn to the sector in search of ever greater returns. While the global…
It is the nature of any dynamic, vibrant industry to have a steady stream of takeovers as trade players seek to gain scale through acquisitions, and institutional investors are drawn to the sector in search of ever greater returns. While the global economic downturn stymied this deal flow somewhat, the recovery has brought a resurgence in attempted takeovers and with it a raft of new owners.
In the past month alone the satellite sector has witnessed a myriad of M&A manoeuvrings with takeovers, consolidation plays and potential IPOs dominating the headlines.
One of the key trends of late has been the battle for ownership following a company filing for bankruptcy protection.
On October 19, ATC licence holding MSS operator TerreStar Networks filed for Chapter 11 bankruptcy protection. As part of its announcement TerreStar stated that it had already entered into a restructuring agreement with one of its major creditors, EchoStar. The plan would see TerreStar exit bankruptcy protection by May 2011 under the control of the US satellite operator.
However, subsequent to the announcement, one of TerreStar’s other major equity and debt holders, Harbinger Capital Partners, sought to disrupt the plan by snapping up most of Terrestar’s senior exchangeable PIK notes. The move will give it a greater say in the bankruptcy court hearing over the EchoStar-led plan and Harbinger will hope give it enough clout to ultimately de-rail it.
It will be interesting to see whether EchoStar will emerge triumphant in this creditor battle for TerreStar as it has failed with a previous ‘loan-to-own’ strategy. Back in early 2009, the company snapped up a significant portion of satellite radio provider Sirius XM’s soon to mature debt with the intention of either converting it to equity or waiting for the DARS operator to eventually default and then become the lead creditor in the subsequent bankruptcy proceedings. However, in this case Liberty Media came to the rescue of Sirius XM and EchoStar’s takeover plan was scuppered.
A year later, EchoStar made a bid for another struggling satellite operator when it offered US$374m bid for Satmex.
This time it was the existing debt holders who blocked the deal.
While Sea Launch’s emergence from Chapter 11 bankruptcy protection at the end of October was a less contentious affair, the launch provider’s new owners Energia still faces an immediate challenge to its position. Sea Launch’s former major owner Boeing is seeking reimbursement from the Russian firm as well as two former shareholders from Ukraine over credit guarantees and loans it made in the aftermath of Sea Launch’s bankruptcy. The aerospace giant is currently evaluating its options regarding potential future litigation.
One company that has been particularly proactive in expanding its footprint through takeovers is Harris Corp. Having purchased satcoms specialist CapRock Communications for US$525m in mid-2010, the global communications group announced in November that it was to buy oilfield services giant Schlumberger’s Global Connectivity Services subsidiary for just under US$400m.
Harris stated that the acquisition was part of its strategy to rapidly gain scale in both the international market and the vertical markets of maritime, energy and government. And Harris’ role of satcoms consolidator is unlikely to end there with CEO Howard Lance intimating that it may make additional acquisitions down the line.
On the sell side, Loral is currently looking at potential exits for both its satellite businesses. Following Telesat’s pronouncement that it would explore an IPO or other strategic alternatives, Loral revealed that it would seek to spin-off or sell its satellite manufacturer Space Systems Loral in order that its shareholders could achieve greater value from any Telesat transaction.
Just as a parallel process was undertaken for Space Systems Loral with both a listing and potential sale explored, a sale of Telesat is also a distinct possibility with one banker telling SatelliteFinance that he saw a trade sale as a more likely option for the FSS operator than a stock market flotation.
Whatever the outcome of Telesat’s strategic review, the fact that it is under consideration shows that transformational deals are becoming increasingly likely after a dearth of such transactions during the downturn.
With M&A activity hotting up and private equity investors returning to the sector, the shape of the industry could be very different in a year’s time.
