Eutelsat backers opt for pre-marketing IPO

Private equity-backed French satellite operator Eutelsat will be part of a new wave of competitive pre-marketing IPOs that could set a new trend for exits in the public market. Along with flotations for cablecom and Telenet, the deal will kick off the September pipeline, with analyst presentations beginning this week.

Eutelsat shareholders, which include Eurazeo, Spectrum Equity Investors, Texas Pacific and Goldman Sachs Capital Partners, are expected to float the IPO in the region of €1bn. For Eutelsat, the number of investors approached by each of the competing banks – Goldman Sachs, Morgan Stanley, Lehman Brothers, Merrill Lynch and Deutsche Bank – is thought to have been similar, but the process was mostly carried out before the start of August.

Like other satellite operators, Eutelsat has already delivered fine results for its sponsors. A dividend was paid in March through a €2.25bn recapitalisation, which took the then investment-grade company back into leveraged territory at around 5.5x total gearing.

Pre-marketing IPOs have been a small but growing feature of the public market since France Telecom’s spin off of Pages Jaunes last year kept a large syndicate of managers guessing about bookrunner roles until after pre-marketing feedback had been submitted.

Apax and Permira adopted a similar approach with satellite operator Inmarsat in June. The IPO was heavily oversubscribed at 245p and was increased to £404.25m, representing 36% of Inmarsat. At the time, the deal was the largest IPO of the year on the London Stock Exchange and was covered by up to 10x by investors.

It is not only the public markets that are providing exits for satellite investments. Private-equity owned operator Intelsat has agreed to buy New York listed rival PanAmSat for US$3.2bn in cash, excluding debt.

Intelsat, which was bought in February by buyout firms Apax, Permira, Madison Dearborn and Apollo, said on August 29 that it would pay US$25 per share for PanAmSat. That is a 40% premium to PanAmSat’s discounted IPO price of US$18 per share when it was floated in March raising US$900m – less than the US$1.12bn planned in its offer documents run by Morgan Stanley, Citigroup and Merrill Lynch.

Intelsat said it would buy all PanAmSat’s shares, after receiving approval from owners of 58% of them, and refinance or assume its US$3.2bn in debt.

Buyout firms Kohlberg Kravis Roberts, Carlyle and Providence Equity Partners bought PanAmSat for an enterprise value of US$4.28bn in August 2004 and after the IPO held 55.2% of the company. The majority of PanAmSat was bought from media mogul Rupert Murdoch’s DirecTV, with KKR owning 44%, Providence and Carlyle 27% each and management 2% for a reported equity investment of US$550m.

Deutsche Bank, Citigroup, Credit Suisse First Boston and Lehman Brothers are financing Intelsat’s bid, although only CSFB is named as its financial adviser. Morgan Stanley is advising PanAmSat, with legal counsel from Simpson Thacher & Bartlett. Wachtell Lipton Rosen & Katz, Paul Weiss Rifkind Wharton & Garrison, and Milbank Tweed Hadley & McCloy are acting for Intelsat.

The merged company is expected to have pro forma annual revenues of more than US$1.9bn, a combined fleet of 53 satellites, and customers in 220 countries.

Intelsat said the deal would create a satellite company operating in the digital delivery of video content, which had been PanAmSat’s main business area, alongside the transmission of corporate data and the provisioning of government communications solutions, which was where Intelsat had focused.

David McGlade, chief executive of Intelsat, who will remain in the post after the merger, said: “The two companies are complementary in customer, geographic and product focus.”

Intelsat had earlier this month reportedly been in talks to buy rival New Skies Satellites, which is owned by Blackstone, for US$1.3bn.