Market Insight

Eutelsat expands its Latin America footprint by taking over Satmex

August 01, 2013

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Eutelsat Communications (Eutelsat), the satellite operator with third largest satellite fleet is buying 100 per cent of Satellite Mexicanos (Satmex) for an enterprise value of $1,142m. The price includes $311m net debt together with Satmex fleet, upcoming satellites and its right to use orbital positions. The deal is expected to close by the end of 2013, subject to regulatory approvals. The acquisition is intended to establish Eutelsat's strong position on the Latin American market and confirms their leading global aspirations. No other bidders were revealed.

Eutelsat has the third largest satellite fleet, with 31 active space crafts. The only two operators with more active satellites in its fleets are Intelsat and SES, both currently with over 50. The acquisition of Satmex will bring additional three satellites, including one in inclined orbit, as well as two more under construction with the prospect of being delivered to orbit in 2015. It is the second purchase for Eutelsat in 12 months, following a takeover of GE 23 for $228m confirmed in September 2012. GE 23, subsequently rebranded to Eutelsat 172A, strengthened the company's position in Asia-Pacific.

The procurement of Satmex by another satellite operators is not a surprise and was considered by several satellite operators at least since Satmex released its plan of restructuration in March 2011, when company was close to fill in for US Chapter 11 bankruptcy. Satmex was able to emerge from its debt by offering new senior security notes to its debtors who voluntarily accepted the deal. It was the second time when company was at the brink of bankruptcy after in August 2006, a US Chapter 11 protection was filled in a court in Manhattan. There was speculation that Echostar was preparing a bid to take over Satmex back in 2010, but it didn't conclude in a formal offer. The possibility of acquisition became a stimulating option after March 2013 when the bill allowing a direct foreign capital to invest up to a 100 per cent into a telecommunication company was passed. Previously, it was reserved for Mexican companies and direct foreign investment could not exceed 49 per cent. After the bill was proposed it was clear that a green light was given to a potential buyer and, consequently, Satmex was sold, subject to approvals.

Satmex revenue improved in 2012 by $10m in comparison with 2011, and reached $139m. It is due to the increased revenue from its core satellite services, mostly telecommunication services providing facilities to companies such as Hughes and Telmex, who together encompass 20 per cent of total income. Satmex, despite its unique position to serve both Americas, with revenue almost equally delivered by three regions, namely: Mexico, USA and rest of Latin America, reported very similar incomes between 2009 and 2011, all within a 3 per cent of the base year. Undisputedly, its revenue will grow more prominent in 2013, due to the launch of SatMex 8 in March 2013 and replacing Satmex 5, which was moved to the inclined orbit. Satmex 8 offers the same capacity in C band as Satmex 5 - used mostly for broadcasting - but will double the Ku band capacity used for broadband and telecommunication. Satmex 6 and Satmex 8 together will contribute 122 transponders in 36 MHz to the Eutelsat's fleet, with a high historical fill rate of over 90 per cent before Satmex 8 launch. It is estimated that the current fill rate for Satmex 8 has already reached 87 per cent. The 122 transponders include 362.88 MHz (10 transponders in 36 MHz) provided at no charge to the Mexican federal government for the duration of orbital concessions.

Latin America offers opportunities for satellite expansion due to its limited terrestrial infrastructure and Olympics in 2016 hosted by Brazil. Eutelsat doesn't have extended presence in this region but with the approval of acquisition and a new Ka band satellite being deployed over Brazil before Olympics it will consolidate the company's competitive position. The Mexican telecommunication market has many traits of its North American counterpart and Eutelsat can expand current Satmex channel offering including introduction to the DTH bouquets. There is still room for improvement as C band on Satmex satellites is estimated to be occupied by around 60-70 per cent by channel providers, mostly representing Mexican and Caribbean operators.

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