Inmarsat/Eutelsat: making waves
French group folds, giving EchoStar chance to show hand for UK satellite group
Satellites relay information at high-speed. So does Rodolphe Belmer, boss of Eutelsat. The French satellite operator withdrew its bid for British rival Inmarsat just a day after it showed interest. Inmarsat shareholders should not lament the resulting dip in shares. Eutelsat’s bid interest followed a previous attempt from EchoStar. More will come.
The logic behind Eutelsat’s shortlived offer is clear: two-thirds of its revenues come from traditional video services, which are fixed satellite services. These are declining as linear television falls out of favour with consumers. Total revenues fell 3 per cent last year. Inmarsat might be struggling for growth, partly through its active offering in mobile data provision — the holy grail of satellite operators. Maritime data represents its largest source of revenue and it is making a push into broadband provision for European aviation. At £5, Inmarsat shares are half the value they were at the start of 2016 and look like an inexpensive way into mobile services.
The bid also makes sense in terms of scale. A larger company will be better equipped to buy the next generation of expensive satellites.
US satellite operator Echostar’s bid follows a similar logic. Like Eutelsat, EchoStar operates in the fixed-satellite sphere so it could benefit from a move into mobile. Boss Charlie Ergen’s past as a professional poker player may offer a hint as to his next move.
Analysts at RBC think Inmarsat is worth at least double its market value. This is in large part because of the company’s US L-band spectrum, which Inmarsat currently leases to Ligado Networks, a company Echostar’s sister company Dish tried to buy in 2012. L-band is assigned for use by satellites but the hope is that it can be used to cover gaps in mobile coverage when 5G is rolled out and be reclassified as mobile. Mr Ergen has until July 6 to show his hand. Investors should hold ‘em until then.