ICO set to sell MEO assets

ICO Global has entered into an agreement with South African investment company Jay & Jayendra (Pty) that gives the latter the option of acquiring all of ICO’s medium earth orbit (MEO) assets.
The contract follows the completion of a review by ICO into…

ICO Global has entered into an agreement with South African investment company Jay & Jayendra (Pty) that gives the latter the option of acquiring all of ICO’s medium earth orbit (MEO) assets.

The contract follows the completion of a review by ICO into the potential opportunities to either deploy or divest its MEO assets, which consist of one in-orbit MEO satellite, ten partially constructed additional satellites that remain in storage, ground station equipment and the right to use certain C-band radio frequencies globally and S-band frequencies outside of North America.

The satellite operator concluded that any deployment would be too complicated due to the ongoing disputes with the MEO satellites’ manufacturer Boeing Satellite Services and UK communications regulator Ofcom, through which ICO had its MEO spectrum filing. To that end, ICO stated that it would be “in the company’s best interests to divest the MEO assets.”

J&J’s option to buy the assets expires on 1 September 2011 and can be terminated by either party prior to this under certain circumstances. If J&J goes ahead and seeks to buy the assets, the transaction will require regulatory approval.

ICO’s VP of investor relations and communications Christopher Doherty told SatelliteFinance that financial details regarding the price that would be paid for the assets was not being disclosed. He added that no financial advisers were used to negotiate the agreement.

Under the terms of the agreement, J&J will reimburse ICO for ongoing operating expenses that are directly related to the MEO assets, provided that the option has not been terminated prior to 1 April 2011. If J&J exercises the option and purchases the assets, the South African company will also pay ICO a nominal amount of cash and warrants to acquire a 5% equity interest in the new entity that will own and operate the MEO assets.

If J&J does take up the option it will need to persuade Boeing to refurbish the partially completed satellites that remain in storage. However, ICO’s contretemps with the aerospace giant should not prove a hindrance with the satellite operator stating that its agreement with J&J has no impact on the court case with Boeing, which is currently on appeal.

The lawsuit dates back to Boeing taking over the construction contract for ICO’s MEO satellites following its acquisition of Hughes Electronics Corp’s space business in 2000. ICO alleged that Boeing demanded an additional payment of around US$400m to make necessary modifications to the satellites. Boeing countered that having agreed to ICO’s request for an extension to the payment schedule of the contract, ICO then terminated the contract as it could not raise the necessary funding. In October 2008, the Los Angeles Superior Court ruled in favor of ICO and awarded it approximately US$631m in damages leading to Boeing’s subsequent appeal.

SatelliteFinance understands that the two parties are currently in the final stages of the appellate process in the California Court of Appeals. Final briefings by both companies were filed with the Court in 2010, and they are now awaiting the scheduling of a three-judge Court of Appeals panel for oral arguments by both parties. J&J will also need to secure the necessary international spectrum rights that had been assigned to one of ICO’s subsidiaries back in 2001 but were revoked by the International Telecommunications Union (ITU) at Ofcom’s behest in 2009. The regulator made its request after it conducted a review into ICO’s MEO system which concluded that the satellite operator had failed in its duty to deploy the system, primarily the result of ICO’s ongoing dispute with Boeing.

ICO challenged this decision and initiated a judicial review proceeding in 2009 but the British High Court ruled in favour of Ofcom in August 2010.

The MEO assets, of course, do not include the geosynchronous satellite and related S-band ATC authorization that is owned and operated by the ICO’s deconsolidated subsidiary, DBSD North America, currently in Chapter 11 bankruptcy protection and the subject of a US$1bn bid by EchoStar.