Does EchoStar bid start a new M&A season?
June 13, 2018
Last week, EchoStar of Denver made an unsolicited bid for London-based Inmarsat. Inmarsat said the terms on offer “very significantly” undervalued the business. Inmarsat added, not unsurprisingly, that it remained highly confident in its strategy and future prospects, which is – no doubt – precisely why EchoStar made its bid.
A year ago, Inmarsat’s share price was around £8.16 a share, and last week, following a week-long rise, the share price was just £4.60. No wonder EchoStar’s founder Charlie Ergen sniffed out a bargain-basement opportunity. A month ago, in mid-May, the price was £3.60.
But if we re-examine the situation in 2017, one banking analyst suggested at the time that Ergen could pay up to £15 a share to buy Inmarsat. Ergen can now come back with an improved offer before July 6th, or under London Stock Exchange rules would be required to walk away for at least 6 months. EchoStar’s war chest has a reported $3.3 billion in cash, as well as immense borrowing powers for the right deal.
Either way the satellite market could be in for a fresh period of Merger & Acquisition activity.
Generally, there’s a positive sentiment in favour of industry consolidation. Smaller players have already seen some activity. A Chinese bid for Israel’s Spacecom, for example, was only thwarted because it lost an important satellite. SES bought O3b in 2016 – in which it already had a stake – paying $730 million for the portion it did not own.
Japan’s SoftBank tried to buy Intelsat a year ago in a deal structured via OneWeb (in which Intelsat also has a modest stake) when Intelsat’s bond-holders held out for more cash. At the time SoftBank said it had held discussions with competitors of Intelsat on other potential deals.
Telesat (of Canada), the world’s fourth largest satellite operator, has long been up for sale – or merger – but its ownership structure is complex and has found any sale challenging. Telenor Satellite (of Norway) has also frequently been talked about as a potential target for sale by its giant telco owner.
SES (of Luxembourg) and Eutelsat (of France) and currently second and third-largest operators would be a logical pair for merger, but state-backed holdings in both companies, as well as problems over monopoly concerns, could scupper any marriage proposals.
The support for some merger activity would certainly come from the investment community, and their bankers, and see operating costs reduced and a higher degree of competitiveness emerge. And a well-heeled player – like an Ergen or Softbank – could easily make a merger happen. But the price has to be right. However, satellite stocks in general have never been as cheap as they now are. And that might provoke some action.