Satellite firm Inmarsat succumbed to a second takeover bid in eight months on Monday as it recommended a $3.4 billion (£2.6 billion) offer from a private equity-led consortium.
The 546p all-cash offer comes from a team including Apax Partners, the buy-out house which floated Inmarsat in 2005, fellow PE firm Warburg Pincus and two Canadian pension funds, and beats a cash-and-shares 532p bid from Inmarsat’s US rival EchoStar last July.
Inmarsat began life in 1979 as the International Maritime Satellite Organization, providing communication services to shipping, but was privatised 20 years ago. The firm is now focused on digitising its maritime networks and supplying in-flight broadband services to travellers on commercial aircraft. But the huge investment needed has put pressure on the balance sheet and a year ago forced Inmarsat to cut the dividend.
Canaccord Genuity analyst James Congdon said the firm faced more pain for investors: “From our analysis the single biggest issue over the last seven or eight years has been that to generate the revenue that they have been generating they have to put in more and more investment... the dividend may have to be cut again.”
The bidders, who are offering a 45% premium to the price when bid speculation first emerged, stressed “investments are expected... to involve negative cash flows in their early years”. Inmarsat’s board also under-lined the “risks involved in implementation of what is a long-term, capital intensive strategy”.
The stock has struggled in recent years, halving from recent peaks above 1100p at the end of 2015. Maritime revenues — 41% of the total — have also been eroded by competitors. Shares rose 42.6p, to 548.8p, or 8%, slightly above the offer price, as markets pondered the potential for a counter-bid.
Directors are in line for a payday if the deal happens. Chief executive Rupert Pearce, who has faced a succession of AGM revolts over his pay, holds 1.06 million shares valued at £5.8 million by the offer. Chairman Andrew Sukawaty’s stake is worth £6.6 million.
The consortium has committed to maintain Inmarsat’s UK headquarters. The business has around 1500 staff and operates in more than 40 countries. UBS, Merrill Lynch and Barclays are advising the bidders, while JP Morgan, PJT Partners and Credit Suisse are acting for Inmarsat.