	OFII: Newsroom

The Wall Street Journal
By Anita Raghavan, Andy Pasztor and Glenn Simpson
May 8, 2003

Inmarsat Agrees to Sale;Security Is Debated

EchoStar Makes Formal Bid For Loral Satellite Assets

In a move that may stoke national-security concerns in the U.S., Inmarsat Ventures PLC's board threw its support behind a $1.5 billion offer for the European satellite operator from two British private-equity firms, Apax Partners and Permira.

The deal, announced Thursday, is a barometer of heightened investor interest in satellite assets and also reflects the consolidation pressures and shifting strategies affecting the rest of the satellite industry.

In a separate development highlighting that turmoil and the shifting alliance it creates, EchoStar Communications Corp. said that late Wednesday it formally made a $1.03 billion bid to buy Loral Space & Communications Ltd.'s North American satellite assets, including four spacecraft in orbit, two more under construction and a number of orbital slots. EchoStar's move upsets Loral's previously negotiated plan to sell the same package of assets to international satellite-services provider Intelsat Ltd. for $1 billion, and sets up a heated battle over whether a stripped-down Loral will ever emerge from federal bankruptcy protection.

The Inmarsat deal comes after some members of Congress, citing security concerns, called on the U.S. government to review any sale to foreign buyers of Inmarsat, which is incorporated in the United Kingdom. Inmarsat owns and operates a global satellite network and provides telecommunications links world-wide to ships, aircraft, vehicles and the U.S. Navy. It is owned by 86 companies, including Britain's BT Group PLC, Germany's Deutsche Telekom AG and France's France Telecom, which have to approve any deal. The national-security questions, initially prompted by complaints from rival bidders, stem from the fact that the U.S. government is believed to account for about 15% of Inmarsat's annual revenue.

The lengthy Inmarsat negotiations were complicated because some of its biggest shareholders also are customers that purchase satellite capacity from the company. In the past few years, Inmarsat's management has aborted at least three different attempts to launch an initial public offering.

Inmarsat's mobile-phone business increased during the war in Iraq and the subsequent rebuilding efforts there, but its prospects are uncertain, because it is in the middle of a $1.6 billion expansion program to offer broadband Internet connections, along with voice and data transmission, using a new generation of satellites. The demand for such new services is unclear.

Although the Apax-Permira group had the early lead in the bidding for Inmarsat, Apollo Management and Soros Private Equity Partners put themselves back in the game last week when they sweetened an earlier bid for Inmarsat to $15 a share from $14.30 a share, people familiar with the situation say. Expecting Apax-Permira would counterbid, the Apollo-Soros consortium boosted its bid again this week, raising it to $15.10 a share or $1.51 billion, these people say. The Apax-Permira consortium raised its offer to $15 a share, or $1.5 billion, from $14.25 a share. Representatives of Permira and Inmarsat declined to comment.

The Inmarsat board's decision comes a couple of weeks after several U.S. lawmakers raised concerns about Inmarsat's falling into foreign hands. "Inmarsat has a substantial relationship with the U.S. Navy, which relies upon dedicated transponders on Inmarsat satellites for a variety of mission-critical functions, and Inmarsat is reportedly used by Army and Air Force Special Operations Forces, as well," U.S. Reps. John D. Dingell (D., Mich.) and Edward Markey (D., Mass.), wrote in an Oct. 2 letter to Treasury Secretary John Snow. The company and its supporters, on the other hand, argue that since Inmarsat already is a foreign entity based in London, the change of ownership doesn't pose any new legal or security issues. "This smells like another example of a U.S.-based company using lobbying to achieve what they couldn't achieve in the marketplace," said Todd Malan of the Organization for International Investment.

In EchoStar's case, Chairman Charles Ergen's decision allows him to negotiate not only for the specific satellite assets but also to try to buy the entire company. The maneuvering is likely to accelerate over the next week, leading up to an official auction and court hearing to approve one of the bids. While a Loral spokeswoman declined to comment, an EchoStar spokesman said the limited bid doesn't preclude EchoStar from trying to buy the entire company. "We remain interested in the full assets," the spokesman said.

A week ago, EchoStar lobbed in a bid to buy all of Loral's assets, including its satellite-making unit, for $1.85 billion, and indicating it wanted to replace Loral Chairman Bernard Schwartz. But since that earlier bid didn't comply with court-ordered procedures, Mr. Ergen opted to submit a new one, apparently to insure his place at the negotiating table.

Write to Anita Raghavan at anita.raghavan@wsj.com, Glenn Simpson at glenn.simpson@wsj.com and Andy Pasztor at andy.pasztor@wsj.com