EchoStar Buying Satmex for $267 Million

EchoStar and Mexican partner MVS Comunicaciones agreed to buy Satélites Mexicanos (Satmex) for $267 million in cash. The deal still requires regulatory and bondholder approval and a Q3 completion is expected, EchoStar said. The acquisition is both highly risky and strategic, company executives said during a quarterly earnings call Monday.

The deal’s largest stumbling block appears to be bondholder approval, which EchoStar President Dean Olmstead said was “far from a foregone conclusion.” The company will be working on the issue over the next 15 days to persuade Satmex bondholders the sale is preferable to continued operations as-is or reorganization, he said. Satmex can use the $267 million from the sale and another $107 million on its balance sheet to distribute to stakeholders as it sees fit, EchoStar said. The company doesn’t expect any out-of-the-ordinary requirements from either government, it said.

In the midst of negotiations, one of the company’s three satellites, Satmex 5, suffered an unexpected shutdown of its primary xenon ion propulsion system, which maintains its in-orbit position (CD Feb 2 p12). The satellite is running on a backup bi-propellant propulsion system, reducing the expected remaining life. The added risk of full satellite failure and potential loss of customers being served by the satellite factored in the deal price, EchoStar said.

EchoStar Chairman Charles Ergen said the deal was among the top 10 percent of risky deals the company has done. EchoStar would be unable to move another satellite to Satmex 5’s orbital position if it fails, but would be able to move some existing customers to its other satellites, EchoStar said. EchoStar will also spend about $300 million in the near future to construct another satellite, something it would do even if the Satmex deal falls through, it said. Satmex also operates two uplink facilities and employs 200. The strategic gain is a wide footprint over Mexico and South America, providing “exposure in fast growing markets” which are seeing growth from two to three times that of the U.S., Olmstead said.

EchoStar Q4 revenue rose 12 percent to $558 million from a year earlier, the company said. It lost $30 million in the quarter, an improvement over a net loss of $704 million a year earlier. Sister company Dish Network reported $2.96 billion in revenue for Q4, up 1.4 percent. The company picked up 249,000 net subscribers and had $179 million in net income, Dish said.