An Aug. 17 Business article incorrectly recounted the history of commercial satellites. Congress created Comsat in 1962 to participate in the development of a global satellite system; Intelsat was founded in 1964 as an international satellite organization. (Published 8/20/04)
Intelsat Ltd., the pioneering commercial satellite company that connected the world through global television and telephone communications, announced yesterday its sale to a group of private investors for $3 billion in cash.
The deal, announced yesterday morning in Bermuda, would mark the completion of Intelsat's transformation to a private company. For most of its 40 years, it has been owned and governed by companies representing 145 governments around the world.
If the deal wins regulatory and shareholder approval, Intelsat will be owned by a conglomerate of four private-equity groups: Apax Partners Inc., Apollo Management LP, Madison Dearborn Partners and Permira Advisers Ltd. In addition to the $3 billion in cash, the buyers are assuming $2 billion in debt.
Intelsat -- best known for transmitting the world's first satellite phone call and for carrying live international television broadcasts of the Olympics -- is incorporated in Bermuda. But the bulk of its corporate operations are run out of its large mirrored-glass building in Northwest Washington, where most of its 900 employees work.
For years, Intelsat's presence in the Washington area helped foster a local satellite industry, starting with Comsat Corp., the company set up to manage the U.S. stake in Intelsat from its inception, and including Hughes Network Systems Inc. and XM Satellite Radio Holdings Inc.
Intelsat executives and its buyers said yesterday that Intelsat will maintain and perhaps expand its presence in the Washington area.
"Washington, D.C., is an ideal locus because of its many international connections as well as corporate sites," said James N. Perry Jr., managing director of Madison Dearborn. "It's a great corporate gem."
The new investors are looking to expand Intelsat's video broadcast and Internet access businesses, Perry said. Intelsat's original business selling telecommunications links across continents and oceans has suffered in recent years because of much cheaper competition from fiber-optic cables, but there are still growth opportunities in remote areas of the world not yet connected through fiber optics, he said.
Madison Dearborn had its eyes on the company for more than a year, Perry said, adding that Intelsat's fleet of 28 young and healthy satellites can sustain at least a decade of growth. He said Intelsat also is a good vehicle to use in consolidation of the industry, making for bigger players with broader reach and more resources.
Intelsat has an unusual corporate history. It was formed in 1964 by Congress, which then assigned its control to various government bodies. Its initial role was to provide telecommunications service to countries that lacked infrastructure for transmitting international phone calls.
Over time, as the satellite industry deregulated, Intelsat had to adjust to changing times and technology. In July 2001, through another act of Congress, the company privatized, with the intention of eventually transferring its ownership from governmental owners to public shareholders.
Intelsat is still required by federal law to issue shares to the public by June 30, 2005, although it could ask Congress to do away with that requirement, said Tony A. Trujillo Jr., chief administrative officer for Intelsat.
Inmarsat, the maritime satellite phone provider, faces a similar requirement to sell shares to the public. It already has petitioned for an exemption through the Federal Communications Commission.
The new investors will pay each of Intelsat's more than 200 shareholders $18.75 per share for a total of $3 billion. One of the biggest beneficiaries is Lockheed Martin Corp. of Bethesda, which is Intelsat's largest shareholder, with 24 percent ownership in the company. It acquired Comsat in 2000 and has been working to exit the telecommunications business since late 2001.
The next largest Intelsat shareholders are Indian telecom firm Videsh Sanchar Nigam Ltd. and France Telecom, which own about 5 percent each.
Intelsat, one of the world's largest satellite companies, generated profit of $181.1 million on revenue of $952.8 million last year.
"We have been saying that this is an industry ripe for consolidation," said Conny L. Kullman, chief executive of Intelsat. "You have four pocketbooks here, and we'll be working with them on strategic opportunities."
Kullman said he and other members of Intelsat's management have not yet signed employment agreements with the buyers but expect to stay on for the foreseeable future.
Intelsat's board of directors unanimously approved the deal. Intelsat still needs the approval of shareholders representing at least 60 percent of its ownership, and it requires approvals from both the Federal Trade Commission and the FCC. The company said the deal could close as early as later this year.
Intelsat's new investor group outbid other investors including the Blackstone Group LP, Kohlberg Kravis Roberts & Co. (KKR), Texas Pacific Group, and Francisco Partners Management LLC, according to sources close to the deal.
Until May, Intelsat planned to sell itself by issuing shares to the public, but it delayed those plans for the third time on May 21 because management believed it could get a better deal for shareholders by negotiating a private sale.
The deal comes as private equity groups scramble to reinvest in the satellite industry. In June, New Skies Satellites NV -- a spinoff of Intelsat -- announced it would sell to Blackstone Group for $956 million. In April, Connecticut-based PanAmSat Corp. announced it sold the company to KKR for $3.3 billion in cash and the assumption of $750 million in debt, then KKR turned around and sold 54 percent of its stake to Carlyle Group and Providence Equity Partners Inc. Also, last year, Inmarsat sold to Apax and Permira, two of Intelsat's buyers.
After building too much capacity in the late 1990s, the satellite industry has consolidated some of its smaller players, and investors believe there is new demand, said Marco A. Caceres, an analyst with Teal Group Corp., a Fairfax-based consultancy. "The satellite industry is in an upswing."