EchoStar buying Inmarsat is logical
December 1, 2017
Satellite operator EchoStar, controlled by Charlie Ergen, is sitting on a cash pile of a huge $2.8 billion (€2.36bn), plus another $500 million of marketable securities, and is currently not doing anything with this ‘war chest’.
Equity analysts at investment bank Jefferies have carried out a study to examine whether a hypothetical bid for Inmarsat might now make sense. Helping their rationale is a fall in Inmarsat’s share price which the bank says “now outweighs the evident dis-synergies and clunking industrial logic of a bid from EchoStar. The ‘earnings penalty’ from holding so much cash must now also be unbearable for EchoStar shareholders.”
“We believe there is merit in doing the merger analysis. We conclude that a £10 per share offer balances all interests (though we estimate EchoStar could bid as high as £15 and still see year 3 Free Cash Flow per share accretion pre-synergies). Our analysis suggests the urge to finally ‘pull the trigger’ on an offer must be becoming overwhelming.”
The bank stresses that its discussion is hypothetical and “is not based on non-public information / confirmation from the issuer or another party, and does not otherwise reference an impermissible rumour.”
The bank adds that it could see EchoStar paying up to a 30 per cent premium for Inmarsat, or even more in order to secure the business.