Inmarsat in “strong position” to demand more cash

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The amount that was being bid by Charlie Ergen’s EchoStar for Lon don-based satellite operator Inmarsat is not known. What is known is that Inmarsat strongly rejected the amount on the table.

A detailed note from equity analysts at investment bank Jefferies suggests that Inmarsat should be holding out for at least £11 per share and, subject to certain conditions, could hold out for something even higher.

“This is only the beginning, in our view,” said Jeffries’ Giles Thorne.

He argues that the EchoStar bid is not about ‘sector consolidation’, but is all about spectrum.

“Many will want to see the approach as the first step in this much-lauded idea of sector consolidation. There’s two reasons why this would be wrong: first, there’s neither enough overlap nor vertical integration in this sector to make consolidation between the large satellite operators particularly synergistic (except in a handful of very select instances); and second, the playing field for US mid-band wireless spectrum has fundamentally changed of late.”

“This is the opening salvo in the battle for mid-band spectrum in the US: On 31 May, Ligado filed a material amendment that could finally unpick the regulatory gridlock around its L-band license modification. The party most at risk from a raft of this high quality mid-band spectrum coming to the wireless ecosystem in the US is EchoStar’s sister company, Dish Network. For the EchoStar and Dish major shareholder and Chairman, Charlie Ergen, it must feel fortuitous that the Ligado risk coincided with a massive de-rating in his single best tool of negotiating leverage (namely, Inmarsat, as critical supplier to Ligado),” says the bank’s note.

The bank’s advice is simple: “Management must hold out for a higher offer: The EchoStar share price has come down materially of late meaning the maximum offer price for Inmarsat that still allows for year 3 Free cash-flow per share accretion is £11. [This is] grounds enough for Inmarsat to negotiate hard. Quantifying the importance to EchoStar / Dish of negotiating leverage around its mid-band spectrum is difficult, but if we’re right in our assessment, then Inmarsat has grounds to secure an offer even higher.”


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