EchoStar terminated its US$374m takeover bid for struggling Mexican satellite operator Satmex after the latter’s debt holders rejected the offer.
On February 26, Satmex and EchoStar announced the execution of a stock purchase agreement whereby Satmex’s…
EchoStar terminated its US$374m takeover bid for struggling Mexican satellite operator Satmex after the latter’s debt holders rejected the offer.
On February 26, Satmex and EchoStar announced the execution of a stock purchase agreement whereby Satmex’s shareholders would receive approximately US$267m in cash from a joint venture of EchoStar and Mexican media and communications group MVS Comunicaciones, as well as up to US$107m of the cash that is on Satmex’s balance sheet, subject to the satisfaction of a number of conditions.
The most significant of these was the successful redemption or repurchase of a sufficient percentage of Satmex’s existing First Priority Senior Secured Notes due 2011 and Second Priority Senior Secured Notes due 2013. Under the terms of the transaction, Satmex planned to purchase all of its US$424.25m outstanding notes for cash upon the closing of the sale of the Satmex shares. The debt buyback would be funded through the US$267m stock purchase, cash and cash equivalents on-hand and the potential sale or lease of the Solidaridad 2 satellite.
At the time of the offer, EchoStar cautioned that the debt repurchase is far from a done deal, stating: “There can be no assurance that the transaction will receive the requisite corporate approvals or approvals from the Satmex bondholders, some of whom have indicated that they are opposed to the transaction. EchoStar may terminate the agreement under certain circumstances, including the failure to obtain the requisite approval by the Satmex bondholders.”
To that end, an Ad Hoc Committee of holders of the more than US$100m of the second priority senior secured notes, representing approximately 55% of the principal amount outstanding of such notes, informed Satmex that they opposed the offer. The Committee stated that Satmex’s offer to redeem the second priority senior secured notes was at a significant discount.
The noteholders did, however, indicate their willingness to entertain alternative transaction proposals, including “a stand-alone refinancing for Satmex, that would repay Satmex first priority notes in full, reduce total debt of Satmex, provide a more meaningful recovery to holders of the Satmex second priority notes and provide Satmex with sufficient financing to launch a replacement satellite and operate its business.”
Following EchoStar’s termination of the stock purchase agreement, Satmex stated that IT “continues to explore its strategic alternatives and restructuring options, and it remains engaged in communications with its major equity and creditor constituents.”
The failure of the deal is the second occasion that Satmex has come close, but ultimately failed, to finding a buyer. Having emerged from Mexican bankruptcy protection in early 2006, Satmex carried out a sales process in 2007. However, a potential deal was scuppered by the Mexican government, which owns a 20% stake in Satmex, as it refused to accept any offers below US$500m. Since then, management has been in restructuring talks with its bondholders with the parties looking at a number of options, including a refinancing, bringing in a partner, or a sale of the business.
Key to the company’s future wellbeing is the acquisition of new satellite, Satmex 7, with both EchoStar and the Satmex noteholders in agreement with the company’s management that the satellite operator main priority is securing the necessary financing to fund such a project.
EchoStar was advised on the offer by Deutsche Bank and Peter J. Solomon Company, while Perella Weinberg Partners continues to advise Satmex. Jefferies is assisting the ad hoc committee with the exploration of potential refinancing alternatives with Ropes & Gray counsel to the ad hoc committee.
…. Agrees Mexican lease deal with SES
Having failed in its attempt to gain scale in Latin America by acquiring Satmex, EchoStar has moved quickly to maintain a grip on the Mexican market. The company has acquired the rights to use Ku-band satellite capacity from SES’ AMC-15 and AMC-16 satellites.
The deal was subsequent to SES announcing that its affiliate, Sistemas Satelitales de Mexico (SSM), had received approval from the Mexican government to offer Ku-band satellite capacity into Mexico from those birds.
Prior to receiving this governmental authority, AMC-15, located at 105W, and AMC-16, at 85W, have primarily been used by enterprise customers in the United States.
SES and EchoStar already have a ten-year satellite service agreement for the latter to lease all of the capacity on QuetzSat-1. QuetzSat-1 is expected to be launched in 2011 and will operate at 77W.
Dish Mexico, EchoStar’s DTH joint venture with MVS Comunicaciones, is to lease 24 of the 32 Ku-band transponders on the satellite.
