Advanced Television

SES confirms Intelsat merger discussions

March 29, 2023

By Chris Forrester

In response to rumours in the market, satellite operator SES has confirmed that the company has engaged in discussions regarding a possible combination with Intelsat.

“At this stage, there can be no certainty that a transaction would materialise. The Board of SES remains fully committed to acting in the best interest of SES and its shareholders,” said its statement.

The rumours about a merger between the pair are not new, and initially surfaced in August 2022.

Sami Kassab, an equity analyst at investment bank BNPP, says that the combined businesses might be valued on the basis of a $10 billion enterprise value. Given SES current Enterprise Value of €5 billion, this would suggest an Intelsat EV of about as much.

However, he adds: “We continue to be sceptical on the strategic merit of such a deal for SES but acknowledge the potential financial appeal of such a combination. On the strategic side, we believe that Intelsat has a weaker Video business (c35 percent of group revenues) than SES (more cable head-end feeding, Russia exposure). We also note that Intelsat balance sheet has prevented the company from investing in non-geostationary Networks and hence we believe Intelsat Networks (19 percent) is likely to see structurally declining revenues. In other words, more than half of Intelsat revenue is in structural decline. Government (19 percent) and Mobility (26 percent) offer better prospects as we believe Intelsat strategy is to move increasingly towards a distributor and system integrator role in Government and Mobility (ie acquisition of Gogo three years ago).”

“On the other hand, this deal would offer financial appeal,” he adds. “For one, Intelsat is about to cash in $3.7 billion pre-tax from C-band payments by the end of this year. Secondly, the company has tax losses carried forward which we estimated at $3 billion in 2018 and which mostly sat in Luxembourg back then. Finally, such a deal would offer significant $200 million+ Opex savings as well as capex savings.”

“Based on the 2021 issued Chapter 11 financial projections and assuming 5.5x net debt to EBITDA pre C-band and a 4x EV/EBITDA-23 multiple, we would value Intelsat equity at c$1.5billion before tax losses and synergies,” states Kassab.

“While the financial side of the deal looks attractive, we are more sceptical about the strategic rationale and would expect the shares to be under pressure except if Intelsat’s valuation comes in particularly low,” he concludes.

Unmentioned by Kassab is the major question of anti-trust sentiment, especially in the US. Europe has plenty of rival competition to SES (not least Eutelsat, Hispasat, Telenor, Arabsat, etc., etc.). This is not the case over North America where the US is dominated by Intelsat and SES (and Telesat over Canada).

Making life easier in any potential acquisition is Intelsat’s ownership, which is now firmly in Europe (and in particular Luxembourg) and Allianz SA in Munich.

Any link would bring an end to the never-ending litigation between the two players over C-band payments.

Categories: Articles, Broadband, Broadcast, Business, M&A, Satellite

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