Liberty Media Corp and EchoStar Communications Corp are preparing a joint offer for leading satellite operator Intelsat Ltd, The Wall Street Journal said late Thursday.
The report comes after sources told Reuters in April that the private equity owners of Intelsat have put the company up for sale and had been approached by a potential buyer, also from the private equity industry.
Intelsat is accepting final bids on Thursday and could fetch more than $5.5 billion, the Journal said. The pairing of Liberty, which will take control of the largest US satellite television provider DirecTV Group Inc this year, and EchoStar, which operates the DISH satellite TV network, is aimed at boosting capacity for high-definition TV and high-speed Internet services.
DirecTV and EchoStar have been exploring ways to jointly expand their bandwidth amid fierce competition from cable companies and phone companies that offer consumers combined video, phone and Internet services. "EchoStar and DirecTV have been talking about working together to achieve synergies for some time," said analyst Todd Mitchell at Kaufman Bros.
EchoStar and DirecTV could use Intelsat's capacity to provide more high-definition TV channels and possibly launch satellite-based Internet services, he said. In another sign of deepening cooperation, DirecTV and EchoStar said on Thursday they would be working with Clearwire Corp to offer high-speed Internet access and voice services using Clearwire's wireless high-speed network.
EchoStar declined to comment on whether it was interested in Intelsat. Liberty Media, headed by cable pioneer John Malone, also declined to comment. Intelsat could not be reached for comment.
The Journal said the two could decide against a formal bid. Intelsat, which has a fleet of 51 satellites, is the world's largest commercial satellite operator and says it carries one out of every four television channels transmitted over fixed satellites.
The company, which was set up as a multi-government organisation in 1964 during the Cold War, was taken private in 2001 and bought by four private equity firms - Apax Partners, Permira, Apollo Management and Madison Dearborn Partners - in a $3.1 billion deal in August 2004. Months later, Intelsat expanded by agreeing to buy another large satellite operator, PanAmSat. Intelsat competes with Europe's SES Global and Eutelsat.
Private equity firms are drawn to the satellite sector because of the companies' steady cash flows, which allow them to take on large amounts of debt to finance transactions. "This is a low growth business with high margins," Mitchell said of IntelSat.
A tie-up between the two US satellite TV broadcasters and Intelsat could also greatly reduce the high costs and risks involved in launching new satellites. News of a partnership between EchoStar and DirecTV will likely renew speculation over whether there could be an eventual attempt to merge the two operators.
DirecTV and EchoStar have tried to combine in the past, most recently in 2002, but were thwarted by US federal regulators concerned it would reduce pay-TV options for consumers particularly in rural US areas.
The two companies have been working together in recent years to seek ways to offer Internet and phone services to their TV subscribers so that they can compete with cable TV operators. Last August, they jointly bid in a US government auction for spectrum licenses for advanced wireless services but eventually pulled out.
On Thursday Intelsat's 7-5/8 percent bonds maturing in April 2012 rose 75 cents to $93 from levels seen earlier in the week, according to MarketAxess, an online bond trading platform.
The junk-rated bonds yield 9.461 percent, or 430 basis points more than Treasuries. The spread narrowed from 460 basis points. The bonds rose, narrowing the yield premium investors demand to accept the risk seen in the debt. DirecTV shares rose by 2.6 percent to $23.47 while shares in EchoStar rose by 1 percent to $45.41 in early trading.
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