Inmarsat suitor EchoStar walks away

Satellite company Inmarsat earlier this week rejected a 532p-per share takeover offer from US rival EchoStar Corporation, which said late on Friday that it had no intention to make an offer.

EchoStar, which last month took a 3% stake in Inmarsat and a 10.4% position in its convertible bonds, announced just after the market closed in London that it "does not intend to make an offer" for Inmarsat.

Under UK takeover rules, this means EchoStar cannot make another bid for six months, apart from under special circumstances.

Earlier on Friday, the US group said it had made a proposal of 265p in cash and 0.0777 new EchoStar shares per Inmarsat share on Tuesday, 3 July, which was then rejected by Inmarsat on Wednesday.

EchoStar said it continues to "seek engagement with the board of Inmarsat on a constructive basis, with a view to agreeing the terms of a recommended transaction" before the Takeover Panel's 1700 BST deadline.

In its own announcement on Friday morning, Inmarsat said its board had rejected the £2.45bn approach on 4 July on the basis that it "very significantly undervalued Inmarsat and its standalone prospects" and reiterated its great confidence in its current strategy and prospects as an independent business.

But EchoStar said that holders of Inmarsat's 3.875% convertible bonds would also each be entitled to receive a value equivalent to just over $296,000 in a combination of cash and/or shares, which it said would represent a total value for Inmarsat of roughly £3.2bn, combining the issued and to-be-issued share capital of Inmarsat and the convertible bonds.

The Nasdaq-listed company said it believes a combination with Inmarsat is "strategically compelling" with a portfolio of complementary assets and service offerings: "EchoStar believes that the improved proposal presents a compelling opportunity for Inmarsat's shareholders to realize certain value from their investment in Inmarsat while also participating meaningfully in the upside potential of the combined company."

Analysts at RBC Capital Markets said this week that Echostar could take its initial offer to around 650p a share, arguing the US company could gain $3.7bn of potential synergies from a deal and would be unlikely to benefit from delaying the process, risking either a white knight or another bidder.

"Failure to make a formal bid would result in a six month delay. While the share price would be very likely to fall immediately, it may well recover substantially in the following six months especially if Inmarsat can pull off the Chinese deal, or Ligado were to gain approval," RBC said.

On Friday, RBC analyst Wilton Fry said he thought the offer was a ‘low ball’ one, especially given the potential £10 per share of spectrum value that he believes Echostar could derive from owning Inmarsat. If EchoStar lets the deadline lapse, he said it could still enter a private conversation with Inmarsat with aim of a reaching an agreed recommendation.

Analysts at Jefferies was not surprised the offer of 532p was rejected by Inmarsat due to the massive FCF per share accretion and the offer "well below intrinsic value".

Given the evident spread between EchoStar and Inmarsat's valuation ideals, and the evident unwillingness to bid-up in uncontested M&A, "we could see EchoStar turn hostile in time", Jefferies said.