Global Giant Intelsat Buys Media-Rich PanAmSat

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Intelsat Ltd. gained video-market expertise and a roster of media-giant customers through last week’s $3.2 billion purchase of PanAmSat Holding Corp., a merger that has created the industry’s biggest global satellite company.

PanAmSat’s expertise and customer base has been on the video side, with a client roster of major cable programmers. By contrast, Intelsat’s forte has been in telephony, data and broadband, with many international and government customers.

“We’ve always said it’s a strong merger between the two, and it makes sense,” said Christopher Baugh, president of satellite-business research company NSR.

Video generates 60% to 70% of overall satellite-industry revenue, according to Baugh.

'LITTLE OVERLAP’

When the deal, which closed July 3, was first announced last August, “We talked about how complementary the two businesses are, and now that I can go through the customers lists, I see there’s very little overlap,” Intelsat CEO David McGlade said. “We can help each other in ways that we didn’t think before.”

PanAmSat’s customers include Comcast Media Center, Discovery Communications Inc., News Corp., Home Box Office, Time Warner Inc. and The Walt Disney Co., while Intelsat’s client base includes CBS, Globecast, the British Broadcasting Corp. and Cox Sports.

In the deal that creates a merged fleet of 51 birds, Intelsat acquired all of the outstanding common shares of PanAmSat for about $3.2 billion. The total value of the transaction, including PanAmSat debt that was refinanced or remained outstanding, is about $6.4 billion.

In order to eliminate overlap in functions like back-office services, Intelsat expects to lay off about 400 employees over the next 18 months, according to a company spokeswoman. That would trim the employee roster of the combined companies to roughly 1,000.

With the addition of PanAmSat’s video-market expertise and media-customer base to Intelsat’s portfolio, the new Intelsat is now the largest provider of fixed-satellite services worldwide to the media, telecom and government sectors. SES Global now ranks second.

The merger will aid Intelsat in a world where convergence is the mandate of the day, according to McGlade.

“Other things we’re seeing [are] that everyone wants video, voice and data, even if it’s a military customer,” he said. “They don’t want just command and control in their in-theater operations, they want video so that they can entertain the troops, and they want broadband, so that people can communicate back home. So we’re seeing this across the board. Convergence obviously is happening. We’re better-positioned to serve it, in terms of the skill sets, in terms of our assets, in terms of the service applications.”

CABLE EXPANSION

Through the PanAmSat transaction, Intelsat also is looking to expand its business domestically, with cable networks and cable operators.

“If we look at the programmers, they get the largest fleet in the world, and when they’re looking to expand around the globe and also within the U.S., it’s great for them: We help with high-def, etc.,” McGlade said.

“With the cable operators, it certainly gives them more technological capabilities, like if they’re looking to upgrade from MPEG-2 to MPEG-4,” he said. “For small operators looking to see how they get their programming, there are a number of ways that we can work with them. Everybody is tight with space in their headend. So we’re looking at how we could we work with them, looking at compression, looking at new technologies.”

Earlier this year Intelsat launched Ampiage, a satellite-delivered “superheadend” that facilitates quick and less costly upgrades to MPEG-4; it also helps telcos enter the Internet-Protocol TV market.

There are also growth opportunities for Intelsat on the global front, according to McGlade.

“One area we’re absolutely focused on is direct-to-home in developing countries,” he said. “That’s one we’re putting a lot of effort into.”

He also expects a jump in the distribution of HDTV programming around the world, especially with the 2008 Olympics slated for Beijing.

Then, there is the telephony business.

“There are cellular opportunities in Africa, South America and Asia,” McGlade said. “Voice over IP is becoming more and more popular with some of our customers, internationally.”

NSR’s outlook on the satellite market “is business as usual,” according to Baugh, with annual growth estimates ranging from 3% to 8%, depending on the application and the market.

“There is no big application that creates a huge spike in growth, but overall, this market will continue to grow incrementally,” he said.

“There are some things that are happening that are positive, the growth of HD [and] the mobile satellite sector overall, which is a very buzzy, hot area right now,” including consumer broadband, according to Baugh.

For the 12-month period ended March 31, pro forma revenue for the combined Intelsat-PanAmSat totals more than $2 billion, and adjusted EBITDA for Intelsat on a pro forma combined basis was $1.6 billion.

McGlade’s executive team includes James Frownfelter, formerly PanAmSat’s president, as chief operating officer, with Joseph Wright, PanAmSat’s CEO, appointed chairman.

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