KOUROU, French Guiana — Intelsat outlasted Eutelsat in an Oct. 29 auction of the in-orbit ProtoStar-1 telecommunications satellite with a $210 million all-cash offer that far exceeded what most industry observers had predicted and demonstrated the continued dynamism of the fixed satellite services industry.
But dynamism for some is irrational exuberance for others, and several industry officials questioned whether Bermuda- and Washington-based Intelsat, along with Paris-based Eutelsat, did not let themselves get carried away by the thrill of the chase.
It was far from a two-company competition, with as many as 11 satellite operators expressing interest in the auction, which was organized by UBS Securities LLC at the New York offices of law firm Milbank, Tweed, Hadley & McCloy. Other bidders in the final round included SES of Luxembourg, EchoStar of Colorado, Thaicom of Thailand and Measat of Malaysia.
One of the bidders that threw in the towel well short of the Intelsat and Eutelsat offers said paying that much for ProtoStar-1, which is healthy, was “not just amazing — it’s crazy.” Another official with a company that had looked at ProtoStar-1 said its beams “are a mess” and will limit the satellite’s revenue-generating potential in whatever location Intelsat selects for it.
Two industry officials speculated that Intelsat, which carries a huge debt load as a result of leveraged buyouts by different private-equity investors in recent years, will have a tough time explaining the ProtoStar-1 purchase to its bond-holders.
Intelsat’s principal private-equity owners, BC Partners Holdings Ltd. and Silver Lake Partners, have more interest in positioning Intelsat as a revenue-growth story than a debt-reduction story as they prepare the company for an initial stock offering, one industry official said in explaining the logic of the ProtoStar-1 purchase.
Several officials said they had thought the winner would need to go perhaps to $150 million, but no higher, and that the highest bids might feature a mixed payment of cash and a sharing of future ProtoStar-1 revenue.
“Everybody involved in this is ecstatic about how it turned out,” said one industry official whose company was involved in the process but was not a bidder. “Even if you have to think the general enthusiasm of the stock market that day might have had something to do with this, you cannot escape the conclusion that the FSS [fixed satellite services] industry is coming through the recession with remarkable strength.”
Intelsat spokeswoman Dianne J. VanBeber said Oct. 30 that the company carefully reviewed ProtoStar-1 and concluded that, for Intelsat, it is nearly equivalent to purchasing a new satellite.
VanBeber said Intelsat is likely to move ProtoStar-1 to a vacant Intelsat slot over the Atlantic Ocean region and use it to bolster its coverage of Africa. One candidate slot is 328.5 degrees east. For Intelsat, she said, ProtoStar-1 is a nearly new satellite already in orbit that is capable of producing revenue growth almost immediately. Typically it takes two to three years from the time a satellite is ordered to when it is on orbit and generating revenue.
Intelsat is in the midst of a substantial capital spending plan, but VanBeber said the satellites on order are almost all intended to replace existing spacecraft, without adding much new capacity in orbit.
“Our fleet has a fill rate of more than 80 percent and if you look at our current planned capex [capital expenditures] we are expanding our fleet by only about 35 transponders by 2014. Most of the satellites we are building now are for replacement. ProtoStar-1 is almost new and the cost of building and launching a large telecommunications satellite these days is $225 million-$250 million. We think the satellite will help us grow our business in Africa.”
Intelsat expects to complete the transaction within 30 days and will operate the satellite under the name Intelsat 25.
“[T]his capacity will allow us to support the growth requirements of our customers, including wireless operators and broadband service providers,” Phillip L. Spector, Intelsat general counsel and vice president for business development, said in an Oct. 30 statement. “Because of our operating scale and collection of valuable orbital locations, we will be able to integrate and operate Intelsat 25 with minimal incremental cost, and rapidly build a backlog of revenue for the new satellite.”
ProtoStar-1 was launched in July 2008. One industry official said an estimate made in July of this year showed the satellite had 15 years of full service remaining. The satellite is a Space Systems/Loral-built 1300 platform with 22 Ku-band transponders and 38 C-band transponders.
ProtoStar-1 has an unusual history. It was originally built in 1997 as ChinaSat-8 and intended for use by China’s ChinaSat operator. But the U.S. government denied Loral permission to export the satellite to China for a launch on China’s Long March rocket, leaving the spacecraft stuck in storage for a decade before it was repurchased by Bermuda- and San Francisco-based ProtoStar Ltd, which had its beams reconfigured.
ProtoStar, a start-up operator, filed for Chapter 11 bankruptcy protection earlier this year, succumbing to multiple frequency-coordination issues both for ProtoStar-1, located at 98.5 degrees east longitude, and for ProtoStar-2, which was launched in May into the 107.7 degrees east slot.