[Satellite News 07-29-08] The ownership saga of Inmarsat took another as Harbinger Capital Partners Funds intends to bid for the mobile satellite services (MSS) company and then combine it with SkyTerra Communications, the parent company of Mobile Satellite Ventures (MSV), Harbinger said July 25.
    “The combination of SkyTerra and Inmarsat would present an excellent opportunity to advance the realization of ubiquitous wireless coverage of the United States and Canada through an integrated satellite-terrestrial communications network,” Harbinger said in a statement.
    Harbinger’s new plans to gain greater control of the MSS sector were announced four days after Inmarsat said the two companies had suspended discussions in relation to a possible offer. Harbinger owns about 48 percent SkyTerra and a 28 percent stake in Inmarsat.
    SkyTerra and MSV entered into an agreement with affiliates of Harbinger with respect to the possible combination of SkyTerra and Inmarsat. "The combination of SkyTerra and Inmarsat, assuming financial terms can be reached, makes a great deal of strategic and operational sense,” Alexander Good, SkyTerra’s president and CEO, said. “It would greatly enhance spectrum efficiency and North American L-band spectrum while providing a foundation for innovation in the global mobile satellite industry.”
    Harbinger also plans to provide MSV and SkyTerra an additional $500 million that will fund SkyTerra’s business plan through the 2010 third quarter and the launch of MSV’s two satellites.
    John Davies, a satellite equity analyst at Dresdner Kleinwort, was not as certain that the combination of the two MSS companies made sense. “It must be a simpler business model if MSV and Inmarsat had one owner,” he said. “Whether that is enough to justify a significant premium in the share price, I don’t know. MSV is more of a business plan than a business. It is in the very early days for them. Inmarsat has a more established business,”
    In response to the new Harbinger plans, Inmarsat said it “remains highly confident in Inmarsat’s standalone prospects. However, the board intends to maintain a constructive relationship with Harbinger and SkyTerra throughout the regulatory review process and will consider carefully any future offer that may maximize value for Inmarsat’s shareholders as a whole.”

Value of Spectrum
Harbinger’s real interest may be finding value in combining the spectrum holdings of the two companies, said a second industry analyst who requested anonymity. Inmarsat and MSV together hold 56 megahertz of contiguous spectrum, but the L-band spectrum is reserved for satellites, and the 700 megahertz spectrum is reserved for terrestrial use.
    “Spectrum that is licensed for terrestrial use is very valuable because it can support millions of customers,” the analyst said. “Spectrum that is licensed for satellite is not as valuable because of the number of customers it can support. [Ancillary terrestrial component service] represents an opportunity to use satellite spectrum in a terrestrial network and that is what this is all about… In essence, they want to put a satellite company alongside a company that owns a lot of spectrum in order to take advantage of the [ancillary terrestrial component] opportunity. Harbinger has invested an awful lot of money in spectrum assets in the United States, and the rules of spectrum in the United States, as I understand it, is use it or lose it. It is quite hard for SkyTerra in its current form to use that spectrum, so they need to protect its value.”
    If the companies reach an agreement, the deal still must pass regulatory hurdles, including a possible change at the U.S. Federal Communications Commission (FCC) that could delay a decision, said Davies. “My suspicion is the FCC will be taking things quite gently at the moment because it is so close to the U.S. elections,” he said. “As I understand, the FCC is partly a political body, you might have different commissioners come next year. That could delay things as well. You can’t have an offer period extending that length of time. These are very uncertain markets anyway, so who knows how these businesses will look like in 12 months time in terms of opportunities.”
    A long delay, however, may not derail Harbinger’s interest in gaining control of Inmarsat and combining the companies, said the unnamed analyst. “I think Harbinger believe that spectrum values are only ever going upwards. This represents a very valuable spectrum resource. They have a track record of investing in something and keeping with it. Their investments in TerreStar and SkyTerra are way under water. They probably have lost half of their money, and yet they are going to throw another $3 billion into the pot. That differentiates Harbinger from other hedge funds, and puts them more into the private equity camp. They are willing to back their investments even when they appear to be going wrong. They have emerged in similar circumstances with successful investments. They will have known for a while how long this regulatory process would take. Their thinking on this is evolving.”