EchoStar expected to unload PanAmSatSpinning off the satellite company could fetch $5 billion 11/18/2001 07:00:00 PM Eastern
In its proposed merger with General Motors' Hughes Electronics Corp., EchoStar Communications not only picks up satellite-TV rival DirecTV but also one of the leading satellite communications companies, PanAmSat Corp.
EchoStar will not talk about its plans for PamAmSat, but some analysts believe that it will be spun off and could fetch as much as $5 billion.
With commitments of nearly $6 billion in service contracts for the next five years, PanAmSat is the second-largest geostationary satellite system in the world (behind SES Astra, in France, which just bought GE's satellite division). In addition to 21 satellites and 800 transponders covering 98% of the Earth, the company operates numerous dedicated fiber links, seven teleport facilities and an operations/customer-service center in Atlanta. Its Galaxy system of satellites is the main distribution system for all the major content providers in the cable-TV industry. PanAmSat is 81% owned by Hughes.
Jimmy Schaeffler, an analyst with The Carmel Group, described selling as the most likely scenario because PanAmSat's principal business—transmitting video, audio and data for TV networks and other business clients—is far from EchoStar's focus—transmitting satellite TV to consumers.
"EchoStar is focusing on delivering ones and zeros to consumers, not selling bandwidth to business, which is what PanAmSat does," Schaeffler said. "[Selling PanAmSat] could be very profitable for EchoStar."
EchoStar can't sell the division, however, until the merger is completed. That's expected in about a year, if the deal meets regulatory approval. Yet, under terms of the deal, if it is not approved, EchoStar is still obligated to buy PanAmSat, Schaeffler said, at a price that would be determined later.
Morgan-Stanley satellite analyst Vijay Jayant agreed that PanAmSat is an undervalued commodity that would attract interest from a wide variety of players.
Although PanAmSat's competitors—and likely buyers—were not talking publicly, it's believed that such companies as Eutelsat, Intelsat and Gilat Satellite Networks would be interested.
"There's value in the PanAmSat assets, but, at this point, we're looking with interest from a distance," said an executive at one competing company, who asked not to be identified. "It's possible that, if the EchoStar acquisition goes through, [PanAmSat's] Galaxy satellites covering the U.S. could be sold in pieces. That's one scenario that would interest us and many others."
Satellite builder and operator Loral Skynet, Bedminster, N.J., and manufacturer Boeing Corp., Seattle, might also be interested, Schaeffler said. Acquiring PanAmSat would allow them to move into the bandwidth-service business for telephony and Internet streaming and hosting.
PanAmSat executives stressed that, until a final deal is announced, it will be business-as-usual for the company. "The sale of Hughes Electronics and its DirecTV business will not directly affect PanAmSat's commitment to its own business," said Scott Tagliarino, vice president of corporate communications and investor relations. "We remain completely focused on providing satellite technology and service to our customers."
PanAmSat has undergone top-level management changes in recent months. Joseph Wright was named president and CEO in August, and James B. Frownfelter was named executive vice president and chief technology officer last week.
|A tally of birds|
|If the FCC allows the merger between EchoStar and Hughes Electronics' satellite division, the merged entity will effectively own 31 satellites capable of reaching 98% of the world's population. Although there is currently some duplication of markets, the deal could allow up to 100 local-into-local markets to be carried. Here's a list of each company's satellites and their longitude location.|
|EchoStar: five satellites and one backup||(Ku-band)|
|Source: Company Web sites|
|One||61.5 degrees west|
|Three||119 degrees west|
|One||110 degrees west|
|One||148 degrees west|
|DirecTV: five satellites||(Ku-band)|
|Three||101 degrees west|
|One||110 degrees west|
|One||119 degrees west|
|PanAmSat: 21 satellites||(Ku- and C-band)|
|Galaxy IR||133 degrees west|
|Galaxy IIIC||95 degrees west|
|Galaxy IIIR||95 degrees west|
|Galaxy IVR||99 degrees west|
|Galaxy V||125 degrees west|
|Galaxy VI||72 degrees west|
|Galaxy VIII-i||95 degrees west|
|Galaxy IX||127 degrees west|
|Galaxy XR||123 degrees west|
|Galaxy XI||91 degrees west|
|PAS-1R||45 degrees west|
|PAS-2||169 degrees east|
|PAS-3||43 degrees west|
|PAS-4||72 degrees east|
|PAS-5||155.5 degrees west|
|PAS-6||43 degrees west|
|PAS-6B||43 degrees west|
|PAS-7||68.5 degrees east|
|PAS-8||166 degrees east|
|PAS-9||59 degrees west|
|PAS-10||68.5 degrees east|