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Intelsat crunch time

May 30, 2017

Investors and bond-holders in Intelsat have less than two days left, until midnight (New York-time) May 31st, to decide whether to accept the revised terms on offer from Japanese media conglomerate SoftBank in its proposed merger between Jersey-based OneWeb and Intelsat.

The deadline was established back on May 17th, and was the fourth time that the deadline had been set. Up until May 17th less than 1 per cent of bond-holders had signed up to the terms then on offer.  That 1 per cent represented barely $31 million-worth of acceptances.  The terms on the table need to be accepted by at least 85 per cent of bond-holders.

SoftBank itself placed an extra $61.6 million into the offer, raising the total cash on the table to $1.79 billion, but also made it crystal clear that the slightly improved offer was the last it would make.

“We are at the absolute limit of what we are prepared to pay for [Intelsat], and unwilling to negotiate any further,” Alok Sama, Softbank Group International’s president/CFO, said in a statement to Bloomberg.

Sama added that SoftBank has been approached by and has been in discussions with several other potential merger partners over the past few months.

SoftBank bought OneWeb in February. A note issued recently to investors by equity analysts at investment bank Jefferies, which summarised what was on offer as being beneficial to Intelsat as “[It] probably sees a merger with OneWeb as a cheap option on securing a decent cache of Ku-band spectrum, and therefore potentially nixing its Ku-band heritage challenge.”

As for SoftBank, Jefferies said: “Softbank probably sees its $1.3bn investment in Intelsat (a business that’s probably got the worst of its revenue headwinds behind it) and sponsoring of a subsequent merger of Intelsat and OneWeb as a cheap source of political cover for a monetisation event around its $22bn / 85% stake in Sprint (needless to say, four-to-three wireless consolidation in the US will be a contentious change of market structure and will come under very heavy antitrust scrutiny). We concluded that the these “invisible hands” would be suitably manipulated by the Intelsat bondholders as leverage to extract a better offer from Softbank. And this is exactly what’s happened…”

However, Jefferies does not get a resounding approval from the bank’s analysts, who say: “OneWeb is nowhere near being a technical (let alone commercially) viable business and Greg Wyler has a reputation of being a maverick (reminding readers of his history at O3b), begging a further examination of Intelsat and Softbank’s motives.”

The bank’s note continues: “Assuming the debt exchange offer does get the minimum acceptances then we see the Intelsat / OneWeb merger proceeding shortly thereafter – this will then likely trigger: 1. A complete overhaul of the OneWeb proposition as Intelsat turns its mind to making the venture viable (and that will inevitably bring a capex hike); and 2. Greg Wyler promptly “exiting stage left” to move on to his next venture. Separately, it wouldn’t be a surprise to then see the rhetoric around a Sprint merger with T-Mobile US step-up a level (and again, we see it as no coincidence that Softbank used its aforementioned 10 May 4Q17 results call to reiterate its desire to merge Sprint with T-Mobile US).”

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