Kohlberg Kravis Roberts & Co. emerged as the winning bidder in the auction for satellite company PanAmSat Corp., topping other financial suitors with a deal valued at roughly $4.3 billion. The transaction was made public just one day after the firm agreed to a reported EURO2.25 billion acquisition of four Dynamit Nobel divisions.
In KKR’s acquisition of PanAmSat, the New York-based buyout shop beat out competing bids from a team comprised of The Blackstone Group, The Carlyle Group and Providence Equity Partners and a consortium made up of Thomas H. Lee Partners, Bain Capital and Quadrangle Group, according to published reports. A pairing of Apollo Management and Madison Dearborn Partners was also rumored to be participating in the auction.
According to a KKR press release, the $4.3 billion purchase price, valuing PanAmSat stock at $23.50 a share, includes the assumption of $750 million of net debt. The transaction represents a discount of roughly 5% to the stock’s closing price the session prior to the sale, but most analysts believe the acquisition premium was already priced into the stock. The valuation signifies a multiple of 7.3x PanAmSat’s 2003 EBITDA.
The DIRECTV Group Inc., an 80.5% stakeholder in PanAmSat, has been moving to cast off its noncore assets amid a push to broaden its core digital television services. As part of the transaction, the two parties, DIRECTV and PanAmSat, agreed to extend and enhance certain agreements. The deal still needs to clear certain regulatory hurdles and is subject to the approval PanAmSat stockholders. It is anticipated that the transaction will close in the second half of the year.
DIRECTV said in a Securities and Exchange Commission filing that it expects to take a charge of $450 million to $500 million related to the sale.
PanAmSat, listed on the Nasdaq exchange under ticker symbol “SPOT,” manages a fleet of 29 satellites worldwide, which are used to deliver video signals for more than 2,100 global broadcast television channels. The company also provides network services to telecom carriers, network service providers and governments in over 80 countries. Time Warner, the BBC, News Corp and Viacom are among PanAmSat’s more notable customers.
The per-share valuation of $23.50 exceeded some analyst estimates of what a buyout of PanAmSat would generate. Morgan Stanley, for one, had projected a target $20 a share for the potential sale of the company in early April. On the day the transaction was announced, Morgan Stanley, in a note to clients, indicated that it expects KKR to exit the company by selling off the business piecemail in staggered sales to strategic buyers. “We believe consolidation is a theme in the [fixed satellite services] industry, which will continue to play out the next several years. We expect KKR to explore all exit strategies… including the sale of pieces of the satellite fleet to existing players in the market,” the firm said. “Orbital locations are scarce and PanAmSat’s North American positions will be attractive to other FSS players.”
Credit Suisse First Boston advised DIRECTV on the sale, while Evercore Partners counseled PanAmSat’s board.