[2/19/07 edition] SES Global has agreed to repurchase 103.1 million shares of SES from GE in a transaction valued at 1.2 billion euros ($1.6 billion), SES announced Feb. 14.

In exchange for its stake, GE will receive shares in a new company, SES International Holdings Inc., to include the on-orbit AMC-23 satellite and its related business and cash worth 588 million euros ($772.7 million); 100 percent of Satlynx; 49.5 percent of Bowenvale, which includes 34.1 percent of AsiaSat; 19.99 percent of Star One and 5.5 percent of Orbcomm.

Separately, GE Equity – an indirect but wholly owned subsidiary of General Electric Capital Corp. – and BVI – a company jointly owned by Able Star, an indirect wholly owned subsidiary of Citic Group – have unveiled a plan to take Asia Satellite Telecommunications Holdings Ltd. (AsiaSat) private, the satellite operator said Feb. 15.

Under the proposed plan, all AsiaSat shares not already held by AsiaSat’s controlling shareholder will be cancelled in exchange for the share offer price of 18.30 Hong Kong dollars ($2.34) per share.

The deal is designed to remove the "overhang" caused by GE’s 19.5 percent stake in SES that had been depressing the company’s shares, SES executives said. GE had owned a part of SES since the merger of SES with GE Americom in 2001.

What the deal’s broader implications mean vary in the eyes of investment analysts.

To Kristof Samoy of Brussels-based KBC Securities, the deal is positive. "At first sight, valuation of the assets seems fair. SES achieves two objectives through this transaction: 1) removal of the GE overhang, and 2) optimization of the business portfolio," Samoy said in a research note. "With regards to portfolio optimization, the New Skies acquisition generated some overlap in Asian and Latin American coverage earlier reached through the minority holdings in StarOne and AsiaSat and a/o 100 percent owned AMC-23.

"Hence the disposal of these assets makes sense. We further believe the disposal of Satlynx is a plus as the operation had mixed success in the past. The transaction should be earnings accretive, will increase financial leverage (investment grade rating will be maintained) and bring the free float up to 70 percent. We regard this deal as positive and expect a positive share price reaction."

To Max Engel of Frost & Sullivan, however, the fallout is hazier. "It’s an interesting question," he said. "As best I can tell, the only reason GE had SES stock was that it came in a merger when SES bought GE Americom. Of course, the first question isn’t, ‘Why was GE selling?,’ but, ‘Why did GE have it? ‘ If it was a good idea then, why wouldn’t it be now?"

Engel compared the transaction to the recently announced combination of the Fixed Satellite Services assets of Loral Skynet and Telesat Canada. "Loral will no longer have to operate the satellite business by selling their stock to Telesat Canada," he said. "They end up with stock in the final company, but that company runs itself. You’re no longer, as a corporate entity, responsible for maintaining that business.

"I think that basically GE wants out. SES’ numbers weren’t great recently, and there’s a lot of rethinking going on about the applicability of satellites."

Driven By DTH Fears?

Engel interpreted GE’s move as an articulation of its skepticism in the long-range prospects for satellites in the burgeoning direct-to-home market. "There’s a lot of talk that direct satellite broadcasting will lose market share to direct-to-home and cable offering triple-play, be it DSL or fiber from the phone company," Engel said. "Obviously there’s no way that satellite can do that. More to the point, satellite doesn’t have a return path.

The fear is that once video-on-demand and triple-play services become more common customers will expect a higher degree of interactivity, Engel said.

"Right now the satellite companies are trying to keep up for a while, but in the long run I don’t think they’ll be able to offer adequate video on demand," he said. "The fact is, that’s just beginning to hit the popular consciousness. There’s beginning to be a reaction. That movement toward the video will be hard for satellite to keep up with, and people are asking what’s to come of direct-to-home satellite video? That’s where SES has a lot of its income: from video, particularly in Europe.

"This is a time to ask whether this is a good thing to be part of," Engel said. "If you don’t like the odds for satellite video, there’s an issue here. So if you’re GE, you can say we’ve gotten out of the satellite business."

That kind of scenario could lead GE to get rid of that ownership stake, Engel said. "They didn’t have to go that way. If business was booming, they’d be happy to collect the profit. They’ve decided they just don’t want their money sunk into it. … Clearly GE will have less of a stake in the satellite industry. I think that the market will take this badly. It’s hard not to take this as a vote of no confidence.

"The question is, is GE right? They’ve made a judgment that they don’t want to be in the satellite industry, is what I say. What I am less certain of is whether they’re correct in that. Nevertheless, a major company has said ‘We don’t think we’ll make money doing this."

A benefit for SES will be that the satellite operator no longer has a major holder of their stock to placate.

"The real question is where does the stock go? If SES just absorbs it, they’ve gained flexibility and a bigger share in the gains" Engel said. "If on the other hand this stock is somehow recycled on the open market — and if this shakes confidence and other investors sell — who will buy?"

–J.J. McCoy