After two years of disappointment, Inmarsat's (ISAT) shareholders are due some good news. Shares in the telecoms giant jumped just over a fifth in the two days after management announced it had received a takeover approach from US peer Echostar Corporation. However, the board rejected the proposal, asserting that it “very significantly undervalued” the group and its prospects. Echostar has until 6 July to make a firm offer.
The confirmation of the approach follows more than a year of analyst speculation that Inmarsat was vulnerable to a potential takeover by peers, including Echostar. The former’s share price has fallen by more than a third in the past 12 months, as rapidly increasing capital expenditure requirements and rising competition within the maritime and enterprise markets have contributed to four consecutive years of pre-tax profit deterioration.
Analysts at Jefferies argue that “the ferocity of the Inmarsat de-rating" has been such that EchoStar can justify the deal despite a lack of obvious synergies between the businesses. Rather, the approach is a way for Echostar to put its $2.2bn (£1.6bn) cash pile to use and gain a greater share of global wireless spectrum, the brokerage argues. However, given the lack of potential synergies, there are doubts over whether any deal would complete. Analysts at Numis reckon cost savings will be minor, given Echostar “has no real involvement in L-band businesses (more than 80 per cent of ISAT's sales) so revenue synergies will be minor also”.
The potential takeover is the second piece of potentially good news for Inmarsat during the past fortnight. The shares enjoyed a minor relief rally on the day Ligado Networks – which leases Inmarsat’s spare US spectrum – filed an amendment with the US Federal Communications Commission (FCC) to allay concerns over its services interfering with military aviation. The US satellite group is battling to win back its licence from the FCC, making Inmarsat’s future payments from Ligado uncertain after this year.
That lack of certainty was one reason behind management’s decision to rebase this year’s dividend to 20ȼ a share, after it had cut last year’s final payment by almost two-thirds to 12ȼ. The Ligado concession could pacify the regulators, although there is no date set for the FCC to reconsider granting the licence. As it stands, Ligado is due to pause payments – worth $127m, or 9 per cent of group revenue, last year – in 2019 and resume the following year. However, given Ligado is a major US competitor to Dish, a potential Inmarsat takeover “gives EchoStar’s sister company, Dish Network, a defensive strategy to protect its mid-band spectrum hoard”, reckons Jefferies.
