Eutelsat backs down on Inmarsat takeover

Bloomberg

France’s Eutelsat Communications SA said it won’t make a takeover offer for Inmarsat Plc, a sudden reversal that strengthens EchoStar Corp.’s hand in its pursuit of the British satellite operator.
Eutelsat had said it might bid for Inmarsat, confirming a report by Bloomberg News. The change of heart means that, under UK takeover rules, the Paris-based company now can’t make an offer for six months except in certain circumstances, Eutelsat said on Tuesday in a statement.
Eutelsat backing down removes the immediate prospect of a bidding war for Inmarsat with US rival EchoStar, whose preliminary offer for the UK satellite operator was rejected this month as being too low. Inmarsat’s share slump in recent years has made it a takeover target in an industry facing new competitive pressures, where incumbents are trying to gain scale and cut costs after a period of heavy capital spending and tepid demand.
Investors recoiled from a potential Eutelsat bid for Inmarsat, sending Eutelsat shares down 6.2 percent. The shares recovered some of that loss on Tuesday, gaining 2.7 percent by 11:29 a.m. in Paris.
Inmarsat sank as much as 9 percent in London on Tuesday. The shares had surged 33 percent since the company disclosed on June 8 that it had rejected a preliminary offer from EchoStar, giving Inmarsat a market value of about 2.9 billion pounds ($3.9 billion).

STRATEGY U-TURN
Eutelsat would have faced financing and governance hurdles with an Inmarsat takeover, which would have represented a strategy U-turn, Olivier Moral, an analyst at HSBC, wrote in a research note.
The overlap between the companies is relatively small and Eutelsat, which is 26 percent owned by the French state, would have faced potential political opposition, said Bloomberg Intelligence analyst John Davies.
“A purchase of a UK satellite company by another that’s backed by the French state is bound to face scrutiny in times of Brexit and could be politically sensitive,” Davies said.
Both Eutelsat and Inmarsat are investing in more reliable broadband for airline passengers as they seek new sources of income. Eutelsat’s biggest business remains satellite TV, while Inmarsat’s largest revenue stream is still providing connectivity to the shipping industry. ViaSat Inc. and and SES SA could also potentially find some benefits bidding for Inmarsat assets, RBC analyst Wilton Fry wrote in a note to clients his month.