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Intelsat Renegotiates Terms Of Its $5 Billion Sale to Zeus

Satellite's Failure Triggers New Talks With Buyer

By Yuki Noguchi
Washington Post Staff Writer
Wednesday, January 19, 2005; Page E05

Intelsat Ltd. is renegotiating its $5 billion deal with prospective buyer Zeus Holdings Ltd. after the failure of a satellite over the weekend, officials of the company that operates communications satellites said yesterday.

"There's been some value change," said Intelsat Chief Operating Officer Ramu V. Potarazu. But he added, "We are still moving forward with the deal. Zeus is in negotiations with our board and with Lockheed Martin Corp., our largest shareholder."

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The loss of the satellite, built by Lockheed, came after the partial shutdown of another Intelsat satellite that provided communications over North, Central and parts of South America in November. That failure also prompted Zeus, which represents four private-equity firms, to reconsider the deal, although there was no announcement at that time of any changes.

Renegotiated terms may require another vote by Intelsat board members, which could delay closing the deal by an additional 30 days, Intelsat spokeswoman Dianne Van Beber said. Originally, the deal was supposed to close before Christmas. A spokesman for Zeus declined to comment on the negotiations.

"The question for the buyers is: Will [Zeus] have to make a capital investment sooner than expected?" said Roger J. Rusch, an analyst with TelAstra Inc., a Palos Verdes, Calif., satellite telecommunications investment advisory firm. If the life cycle of Intelsat's satellites proves shorter than expected, it could cost Zeus hundreds of millions more than anticipated, he said.

Intelsat, which operates in Washington but is headquartered in Bermuda, said Monday it would write off $73 million related to the lost satellite, which the company had hoped to operate until 2015. Intelsat still operates 27 satellites.

The failed satellite covered mostly island nations in the Pacific Ocean. It served customers such as OPT, Polynesia's main telephone company, and about 80 other small customers in Tahiti, Fiji, Micronesia and New Zealand, Van Beber said. Intelsat has restored service to about 45 percent of those customers by retuning satellite dishes and redirecting traffic to its other satellites, she said. But because the company lacks sufficient capacity in those areas, it also transferred some traffic to another operator, New Skies Satellites B.V., she said.

The satellite's failure dealt a jarring blow to Intelsat, whose executives have been on the road trying to raise $2.55 billion from bond investors to help finance the Zeus deal. Potarazu said he was on his way back from Los Angeles after completing one leg of his fundraising trip on Friday when he first heard about the satellite's failure.

"Again! This can't be happening," he said, recalling his reaction. In the past 32 years, only one satellite has died prematurely, he said, so it's particularly bad luck that two of the company's satellites have faced shutdowns in three months, just as the company is trying to close a key deal.

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