Would SES/Intelsat merger make sense?
January 19, 2022
The FT reports that as Intelsat emerges from its Chapter 11 bankruptcy reconstruction the satellite operator will lose its CEO Steve Spengler (who will leave with a pay-out of at least $4 million) but could also find itself open to a takeover. SES is mentioned as a potential buyer.
The FT quotes analyst Armand Musey, who heads up satellite consultancy Summit Ridge, and says that a merger with SES could make sense.
“There is no real route other than to sell to someone who can use the synergies of the installed customer base, which they can serve more cheaply,” said Musey.
However, a note from Sami Kassab, equity analyst at investment bank Exane/BNPP, disagrees. While Intelsat will emerge having halved its debts from around $16 billion to about $7 billion and upcoming receipts of accelerated incentive payments from the FCC will reduce debt even further.
Kassab said: “Merging both entities would generate significant opex savings (probably more than 20 percent of Intelsat’s EBITDA) and some capex synergies. Intelsat, unlike other satellite operators, seem less exposed to sovereignty issues and SES is one of the few commercial satellite operators authorised to directly sell its services to the US Dept. of Defense (DoD).”
Kassab added: “However, due to its historical debt burden Intelsat has not been able to invest in a next generation non-geostationary satellite system and looks ill-equipped to compete in the age of mega-constellations. Intelsat is forecasting its Networks revenue division to be in structural decline. More than 40 per cent of its Media revenues are from lower quality cable distribution and video contribution vs. less than 4 per cent for SES. Intelsat is likely to see a steeper rate of Video revenue decline than SES over the next three years. We see the US DoD gradually reallocating spending away from GEO to Non-GEO systems. Intelsat main strategic appeal for SES would be its vertical integration in the Mobility and especially Commercial Aviation market.”
“We believe that network sharing agreements could prove a more attractive way for both companies to create value,” continued Kassab. “Wholesaling part of SES mPower capacity to Intelsat would de-risk SES’s flagship project and facilitate financial returns. Intelsat has recently obtained FCC authorisation to launch a MEO satellite system and has clearly stated its ambition to become a multi-orbit operator. It has looked at acquiring OneWeb in the past. Wholesaling part of SES mPower capacity would provide a quicker and possibly more efficient way for Intelsat to an attractive and competitive non GEO system.”