Sponsored by Odyssey Corporate Finance
Contact: Tom McCarthy, Director, Odyssey Corporate Finance
M: 07867 459 600
D: 0121 503 2375
E:
www.odysseycf.com
————————————————————————-
13 Sep 18. Melrose in it for the long term. At its core, Melrose Industries’ (MRO) business model sounds simple: buy plateauing industrial firms, improve their margins and sell them at a profit. The reality tends to be more complicated. The strategy will always – and quite rightly – face intense scrutiny, even if the charges of ‘corporate raider’ and ‘asset stripper’, which dogged the FTSE 100 group in its recent takeover of GKN, lack clarity or evidence. Reshaping sprawling businesses, while juggling global industrial and economic cycles is a high bar for any management team. And that’s before we get to the risks of leverage. But on balance Melrose has tended to deliver for its investors. Half-year results provided early signs that the GKN era will see a continuation of this trend. Those wanting proof of Melrose’s track record need only look at its c-suite’s latest pay packet. In May 2017, its top four directors were handed £160m-worth of shares as part of a share-price-linked incentive plan. That may seem obscene – and indeed a sizeable bloc of shareholders baulked at the executives’ remuneration at the annual meeting – but it at least shows that management interests are aligned with ordinary investors’. In the five years covered by the plan, Melrose bought metering firm Elster for £1.8bn and sold it for £3.3bn, tripled its money on several smaller businesses, and returned the proceeds to investors through a series of special dividends. By the group’s calculation, it has created £3.6bn in shareholder value since being incorporated in 2003 when it had a £13m market capitalisation.
For the next five years, the focus will be on GKN, which Melrose snapped up after a string of profit warnings from the UK-based aerospace and driveline specialist with a leadership vacuum and a depressed share price. Melrose sees the UK stalwart as a group of “world-leading, but currently underdeveloped businesses”, and believes it can lift trading margins from around 7 per cent to over 10 per cent by 2022, a commitment renewed in last week’s half-year results. Should the targets be hit for GKN, Melrose’s top four directors could land £285m. For this to happen, investors’ holdings would have to appreciate substantially, too.
So what’s the story thus far? At the half-year stage, GKN’s financial contribution was limited to 73 days of trading, but included all acquisition costs – not just stamp duty and Melrose’s professional fees, but the £129m GKN spent defending the takeover. And while ownership is nascent, each GKN division – aerospace, automotive and powder metallurgy – is now operating on a standalone basis. Melrose has also promised to plug GKN’s legacy pension deficit, and invest in projects including a new aerospace technology centre in the UK and an engine repair facility in Malaysia. Most encouragingly, perhaps, a hampered due diligence process appears not to have missed any corporate or operating “black holes”.
Still, the deal has caused a surge in net debt, from £572m at the end of 2017 to £3.4bn at the end of June this year, meaning Melrose needs to improve GKN’s profitability fast.
As you’d expect, the group already has a plan. In aerospace, losses in North America are narrowing, while the broader market outlook remains positive, and initiatives have been launched to tackle weak pricing, onerous contracts and procurement issues. In automotive, management has kick-started focused price increases, global cost base reductions and investment in the eDrive business, all in the face of global headwinds. And in powder metallurgy, the one part of GKN that was performing well, Melrose thinks it can push margins from 10.4 to 14 per cent, and begin a sale process this year. Added to this, divisional managers across the group have had their “incentive arrangements realigned”.
For aerospace, which on a pro-forma basis contributed 22 per cent of Melrose’s operating profit in the first half, Numis believes operating margins can double to 14 per cent. That would match the current profitability of ventilation and security business Nortek, which Melrose bought for £2.2bn in 2016. Since then its margins have climbed six percentage points thanks to central cost savings, better returns on capital and cuts to low-margin sales.
IC View
In May, broker Numis cautioned that while GKN offers value, Melrose’s backers might need more patience than past takeovers – as is already proving the case with Nortek and Ergotron. Given GKN’s scale, that seems appropriate. A long-term horizon also helps to move the focus from near-term earnings to a sum-of-the-parts valuation. The latter assumes Melrose can and will sell GKN when margins peak in about five years’ time, and when the combined value of its subsidiaries is worth 337p. Before then, Numis thinks Melrose could net £6bn from the sale of Nortek, Ergotron and the powder metallurgy businesses. Doing so might help to improve investor confidence, and remind the market of the shares’ average annual return of 22 per cent since Melrose was incorporated. Buy. Last IC View: Hold, 224p, 20 Feb 2018. (Source: Investors Chronicle)
13 Sep 18. Ricardo plc – Preliminary results for the full year ended 30 June 2018.
HIGHLIGHTS
- Record order intake at £413m, up £47m on FY 2016/17;
- Record year-end order book at £288m, up £40m on June 2017;
- Revenue up 8% to £380.0m;
- Underlying PBT up 2% to £39.0m on FY 2016/17;
- Strong performance in Asia and electric vehicle order intake, with a good mix of orders across our market sectors;
- Acquisition of Control Point to enhance US defence business;
- Disposals of Chicago and Southern Germany engine test facilities, to balance asset mix with the trend towards electrification;
- Order flow disruption in the second half and the close out of some challenging projects impacted performance in our UK Automotive business. Changes made and swiftly addressed;
- Strong working capital management has reduced net debt to £26.1m from £37.9m at June 2017 (after £6m acquisition of Control Point); and
- Outlook is positive with a good pipeline – dividend increased by 6% to 20.46p from 19.30p.
Commenting on the results, Dave Shemmans, Chief Executive Officer said:
“In this financial year, Ricardo saw solid revenue growth and an increase in the order book to record year-end levels. We also successfully acquired and integrated Control Point Corporation. Our global presence and strategy of sector diversification helped the business to mitigate the continued impact of uncertainty in the UK market. Our growing order intake, particularly in Asia, reflects our clients’ continued demand for our high-quality products and services.
“Our test facilities in Chicago and Southern Germany were sold during the year to ensure we continue to move with the trend towards electrification. Actions were taken in our UK Automotive business to respond to issues relating to a disrupted flow of orders in the second half of the year and a small number of challenging projects relating to the new WLTP emissions legislation.
“We enter the new financial year with a more agile business and a confident and positive outlook. Ricardo’s global capabilities and presence in a number of growing markets, together with its strong order book, all provide a solid foundation for continued growth.”
Investors Chronicle Comment: Shares in Ricardo (RCDO) were down this morning after the group reported sharp drops in statutory profits and EPS, brought about by restructuring and challenges in the automotive sector. However, both the order intake (new contracts won) and order book (work yet to be completed) grew to record levels in the year. And cash conversion remained strong, sending net debt down 31 per cent. The long-term drivers are still in place.
12 Sep 18. Thyssen interim CEO plans shake-up of engineering unit: source. Thyssenkrupp’s (TKAG.DE) interim boss Guido Kerkhoff is working on a restructuring of the German conglomerate’s plant engineering and shipbuilding division, a source familiar with the matter said on Wednesday. Kerkhoff is preparing to replace the unit’s head Peter Feldhaus and finance chief Stefan Gesing, the source told Reuters. The likely successor to lead the division is Marcel Fasswald, who would concentrate on turning the business around. Shipbuilding should be split off from the unit and report directly to the managing board, the source said. The Handelsblatt newspaper was first to report the plan. Thyssenkrupp declined to comment. Earlier on Wednesday, three people familiar with the matter told Reuters that how Kerkhoff handled the engineering business was likely to influence whether he keeps the top job.
Settling who will succeed Heinrich Hiesinger, who left in July over a strategy clash with leading shareholders, will help to determine whether Thyssenkrupp clings on to its conglomerate structure or seeks ways to simplify its business. The 50-year-old Kerkhoff, who served as finance chief under Hiesinger and was given the top job pending the appointment of a permanent successor, is seen as part of an ‘old guard’ that some investors say failed to turn around the group quickly enough, the people said.
But a planned restructuring of the group’s ailing industrials division, which makes everything from submarines to chemicals plants, could allow him to show what he can do, they said.
“The longer there is no permanent CEO the longer Kerkhoff has to prove himself,” one of the people said.
Another person said Kerkhoff would likely be on the short list of CEO candidates that is currently being put together.
Thyssenkrupp is currently looking for both a new CEO and a new chairman.
Industrial Solutions, dubbed Thyssenkrupp’s “problem child” by Kerkhoff, was responsible for a group-wide profit warning in July, suffering from higher than expected costs for a number of contracts in Turkey, Saudi Arabia and Australia.
The division accounted for 13 percent of sales last year.
Kerkhoff briefed the group’s supervisory board on the problems at the division at a meeting on Tuesday, including options for how to fix them, the people said, adding they expected further cost cuts and restructuring measures.
Thyssenkrupp is already in the process of slashing a total of 2,000, or about one in ten, jobs at the unit, which it said would improve operating profit by up to €200m ($232m) a year.
Kerkhoff, who joined Thyssenkrupp from Deutsche Telekom (DTEGn.DE) in 2011, told analysts last month he was planning to “take out some layers in the organization” at Industrial Solutions.
To make a difference he would have to launch a sales process for the unit’s shipbuilding operations or other parts, one of the people said.
Germany’s Rheinmetall (RHMG.DE) and French shipping company Naval Group, have been considered potential buyers but Thyssenkrupp has declined to discuss any deal, people close to the matter have said in the past.
(Source: Reuters)
11 Sep 11, 2018. FLIR Systems Acquires Acyclica. FLIR Systems. Inc. (NASDAQ: FLIR) announced today that it has acquired Acyclica, Inc., a leading developer of software for automotive roadway and intersection data generation and analysis. Acyclica’s solutions provide high-resolution, real-time traffic information to transportation department end-users to make roads safer, reduce congestion, and improve overall efficiency and performance of thoroughfares. Based in Denver, Colorado, Acyclica delivers cloud-based analytics of data generated from proprietary technology and from other sensing sources, such as visible and thermal cameras, roadway sensors, radars, and intersection signals. The Acyclica solution is utilized by transportation departments across the globe to get a clear, accurate, and actionable view of their roadway infrastructure to improve traffic flow and safety. Acyclica’s APIs allow for easy integration into third-party Intelligent Transportation Systems (ITS) systems, including FLIR ITS cameras, which are currently offered with Acyclica technology on board.
“Acquiring Acyclica is a key step for our ITS business in that it adds a new sensing platform and a data analytics software element to our mission to provide complete and valuable traffic optimization solutions for our global transportation system customers,” said James Cannon, President and CEO of FLIR. “The great efficiencies that are created with these ITS systems fits our mission of improving livelihoods and adds to our broader smart and safe city solutions. Additionally, we feel the capabilities of the Acyclica team in data analytics and software platforms is scalable across numerous other FLIR businesses.”
The Acyclica business will be part of FLIR’s ITS division within FLIR’s Commercial Business Unit. FLIR anticipates this transaction to be neutral to 2018 net earnings.
12 Sep 18. TAE Aerospace set to take over Victorian firm. Queensland-based TAE Aerospace is taking over the operations of Victoria-based Kidde Aerospace and Defence Australia (KADA), a deal set to significantly expand its aviation support and engine overhaul business. That’s expected to be finalised by the end of September. KADA is a subsidiary of US firm UTC Aerospace Systems and the deal includes an agreement with UTAS that will designate TAE Aerospace as the only licensed overhaul facility in Australia, New Zealand and much of the region for certain UTAS businesses. TAE Aerospace chief strategy officer Darren Hutchinson said the opportunity to take on KADA’s capabilities arrived as the company was looking for ways to expand operations.
“It has been part of our growth strategy for a while now to look for interoperability between the platforms we service, particularly between air and land-based platforms, but also marine in the future,” he said.
Hutchinson said that four years ago TAE signed an agreement for total logistics support of the AGT1500 engines in the Army’s Abrams main battle tanks.
“At the time it was considered unusual for an aerospace company to work on a tank engine, but they are both gas turbine engines and operate in a similar way,” he said.
“It’s just that one runs on diesel and the other on jet fuel and we knew the skills were transferable.”
Hutchinson said the transition from air to land-based platforms had proved successful for both TAE Aerospace and Army.
Having local in-country support had delivered significant benefits in responsiveness, cost and turnaround time.
Around half of KADA’s business supports the Army’s fleet of land vehicles, including the M1A1 Abrams, ASLAV, Bushmaster and Hawkei vehicles. KADA also provides services to a number of aircraft customers, including Qantas and Virgin. KADA general manager Ray Walton said that both KADA and its UTAS parent welcomed the deal and the benefits it would bring to their customers.
“UTAS decided that KADA would benefit from an in-country business structure and was open to partnering with a company whose operations were closely aligned with the KADA business,” he said. “It wanted a partner that had the local experience, reputation and capability to support KADA’s growth into the future.”
Walton said TAE Aerospace’s reputation as a provider of maintenance repair and overhaul (MRO) was unmatched in the region.
“We know our customers will receive the highest levels of service. We are pleased to be part of a 100 per cent Australian-owned company that has the full backing of the OEM,” he said. “We look forward to continuing to provide our customers with the quality fire protection and safety systems they expect, backed by responsive service from an in-country provider.”
Hutchinson said that from TAE Aerospace’s perspective, the deal was perfectly matched to its customer base and skill set.
“The KADA capabilities are applicable to military and civilian, air and land-based customers and we have the same mix in our customer base,” he said. “To service the products effectively you need deep MRO experience as well as the backing of the OEM. We have the largest MRO capability in the region, and a long history of working closely with OEMs under licence arrangements. We could see the synergies and the opportunity came along just at the right time for us.”
The deal also expands TAE Aerospace’s national footprint. The company operates from locations in Queensland, South Australia and NSW, and once the deal is finalised, Victoria. Hutchinson said he welcomed the opportunity to expand the relationship with the Army.
“There is an exciting opportunity for further collaboration between TAE Aerospace and Army and a chance to build on the strong relationship that already exists,” he said. (Source: Defence Connect)
11 Sep 18. Donaldson Company Enters Agreement to Acquire BOFA International LTD,. Global Expert in Fume Extraction Technology. Donaldson Company, Inc. (NYSE: DCI), a leader in the global filtration market, has entered into a definitive agreement to acquire BOFA International LTD (BOFA). BOFA designs, develops and manufactures fume extraction systems across a wide range of industrial air filtration applications.
Headquartered in Poole, United Kingdom, BOFA was founded in 1987 and employs approximately 250 people. BOFA expects to generate sales of approximately $40m in its current fiscal year. BOFA sells fume extraction systems to OEM customers, distributors and end users, and has recurring sales of replacement filters. Its fume extraction systems are used in laser, electronics, printing, 3D printing and dental applications.
“We are excited to leverage BOFA’s high-quality products and strong customer relationships to expand into new industrial air filtration markets and applications,” said Jeff Spethmann, senior vice president of Donaldson’s Industrial Products segment. “With Donaldson’s expertise in filtration technologies and global manufacturing and distribution footprint, we plan to further accelerate BOFA’s global growth and add additional filtration technology to BOFA’s products.”
“BOFA’s fume collection business will be an excellent complement to our global portfolio of filtration businesses,” said Tod Carpenter, chairman, president and chief executive officer. “The acquisition of BOFA aligns well with our strategy by growing our industrial air filtration business and diversifying our company through technology-led filtration solutions. I look forward to welcoming BOFA’s employees and customers to Donaldson Company, and supporting the BOFA team as they continue to grow their business.”
Miscellaneous
Donaldson has entered into a binding agreement to acquire 88 percent of BOFA for approximately £79m. Completion of the transaction is subject to customary closing conditions. Donaldson expects to close the transaction during the first quarter of fiscal 2019. Once the transaction is complete, Donaldson will report revenue from the acquisition of BOFA within its Industrial Filtration Solutions business in the Industrial Products segment.
Statements in this release regarding future events and expectations, such as forecasts, plans, trends and projections relating to the Company’s business and financial performance, are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, and are identified by words or phrases such as “will likely result,” “are expected to,” “will continue,” “will allow,” “estimate,” “project,” “believe,” “expect,” “anticipate,” “forecast,” “plan,” and similar expressions. These forward-looking statements speak only as of the date such statements are made and are subject to risks and uncertainties that could cause the Company’s results to differ materially from these statements. These factors include, but are not limited to, world economic and industrial market conditions; the Company’s ability to maintain certain competitive advantages over competitors; pricing pressures; the Company’s ability to protect and enforce its intellectual property rights; the Company’s dependence on global operations; customer concentration in certain cyclical industries; commodity availability and pricing; the Company’s ability to develop new information technology systems and maintain and upgrade existing systems; information security and data breaches; foreign currency fluctuations; governmental laws and regulations; changes in tax laws, regulations and results of examinations; the Company’s ability to attract and retain key personnel; changes in capital and credit markets; execution of the Company’s acquisition strategy; the possibility of asset impairment; execution of restructuring plans; the Company’s ability to maintain an effective system of internal control over financial reporting. These and other risks and uncertainties are described in Item 1A of the Company’s Annual Report on Form 10-K for the year ended July 31, 2017. The Company makes these statements as of the date of this disclosure and undertakes no obligation to update them unless otherwise required by law. (Source: BUSINESS WIRE)
11 Sep 18. Cohort AGM Statement & First Quarter Update. Cohort, the independent technology group, is today holding its Annual General Meeting. The Chairman, Nick Prest, will make the following remarks to the meeting:
“Cohort improved its performance again last year, and achieved a record adjusted operating profit. A strong contribution from EID and a return to growth at MASS, with MCL steady, offset a weaker performance at SEA, where restructuring is expected to improve its performance this year. Although the UK defence market remains tight, the Cohort businesses have strong and relevant capabilities, established positions on some key long-term UK MOD programmes, and a good pipeline of new opportunities and export prospects. The Group’s net funds as at 31 August 2018 stood at £5.3m. As expected, this is lower than the £11.3m at 30 April 2018, primarily as a result of the timing of supplier payments at MCL.
“At 31 July 2018 the Group’s order book stood at £104.5m (compared to £102.5m at 30 April 2018). The underpinning of the full year’s externally forecast revenue is nearly 60%, slightly lower than last year. Since we reported the Group’s final results in June, we have continued to hold positive discussions with customers about important order opportunities, including:
- Renewal and extension of export electronic warfare work at MASS
- Export orders for torpedo launch systems at SEA
- A new export order for MASS’s Thurbon database
- Further orders for submarine surveillance systems at MCL
- A large order for vehicle intercoms for EID from a Middle East customer
“The Group’s performance for the year will depend on the level and timing of success in these and other order prospects. Considering the balance of risks and opportunities, we maintain our overall performance expectations for the year. We continue to look for opportunities to augment organic growth through targeted acquisitions, supported by a strong funding position.”
10 Sep 18. SkyX Raises $9.5m USD in Series B Funding. SkyX, the Canadian long-range unmanned aerial monitoring and data collection company, has announced that the company has closed $9.5m USD in Series B funding from the Almond Tree/SkyX Limited Partnership (LP), led by Almond Tree Enterprise Inc. This second round of financing brings SkyX’s total funding to date to $15.8m USD ($20m CAD) and comes just two-and-a-half years after the company was founded. This new capital will support SkyX’s ability to execute contracts with clients as well as continue to move forward with new and existing strategies to support global demand from utilities and oil and gas corporations. SkyX’s autonomous systems capture complex high-resolution data and deliver easy-to-understand, actionable results to global clients. The company’s first-of-a-kind drones, using a variety of sensors, can gather a vast array of customized data, enabling clients to take charge of what has previously been an expensive and complex task ─ monitoring long-range assets like oil and gas pipelines.
According to Mark Mandelbaum, President and CEO, Almond Tree Enterprise Inc., “SkyX has shown tremendous growth since its founding. The company’s amazing technology and continuous product innovation, coupled with its ability to assemble world-class executive and engineering teams at this early stage in the company’s life cycle, is a testimony to its incredible promise and growth potential. SkyX is a true leader in the drone data revolution.”
“We were highly impressed with what SkyX has been able to build with limited resources,” noted Noam Edell, President, Clanton Capital Inc., who helped facilitate the partnership between Almond Tree Enterprise and SkyX.
“We’re very excited to see what the future holds for SkyX. With substantial financial resources in place, SkyX is in a terrific position to ramp up expansion plans. The company’s technology, which has the power to impact business efficiencies and effectiveness, will also have a positive impact on the environmental landscape around the world. We are currently in talks with a number of big energy companies from around the globe intent on employing our services,” noted Didi Horn, Founder and CEO, SkyX. “Daily requests for trials and demonstrations reinforces the tremendous promise of this new category of long-range drone-driven data services. With the Almond Tree/SkyX LP’s cash infusion, we are eager to accelerate our go-to-market strategy. This announcement comes a little more than one year after Shenzhen-based Kuang-Chi Group made a significant multi-million-dollar investment in SkyX. Today, thanks to funding from Almond Tree and Kuang-Chi, we are well positioned to meet our business goals this year and for the foreseeable future.”
Using a subscription-based price model, SkyX technology enables clients to reduce maintenance and monitoring costs while increasing the visibility, integrity and safety of their assets. Detecting and reporting leaks (even at night); scanning for right of way violations; and capturing and reporting vegetation encroachment are part of the typical mission. Further, the company’s services help clients reduce emissions caused by inefficient monitoring processes; and decrease groundwater contamination thanks to increases in inspections, improved data and faster alerts. (Source: UAS VISION)
10 Sep 18. Leonardo Exercises its Right of First Refusal to Purchase of 98.54% of Vitrociset. Leonardo’s Board of Directors, convened today under the Chairmanship of Gianni De Gennaro, has decided to exercise its right of first refusal and so to purchase 98.54% of Vitrociset, of which Leonardo currently holds a 1.46% stake. This follows the notification of an offer received on 9 August. The transaction creates value, enabling Leonardo to strengthen its Services core business, mainly Logistics and Simulation & Training, and Space Operations activities, including Space Surveillance and Tracking. Moreover, this initiative allows the national consolidation of the Aerospace, Defence and Security value chain, increasing its competitiveness with significant market opportunities. Subsequently, the most appropriate corporate structures will be assessed, also to enable the possible entrance of other partners, who can contribute to a better positioning of Vitrociset in reference business. Vitrociset offers specialized services and solutions for complex systems in the fields of Defense and Security, Space, Transport and Critical Infrastructures; with 989 employees, of which ca. 630 are in Italy, Vitrociset reported in 2017 ca. €163m of revenues and €236m of orders. The transaction is subject to a number of closing conditions, including Golden Power and Antitrust approvals. (Source: ASD Network)
10 Sep 18. SAIC to acquire Engility. Science Applications International Corp. has agreed to acquire competitor Engility Corp. in a $2.5bn all-stock transaction that will create one of the three largest publicly-traded government IT and professional services company. This transaction continues a run of megadeals in the government market within the past two years focused on building scale to add resources for bids on complex technology projects. Underpinning these megadeals is renewed confidence in the market amid defense and overall IT spending increases. Within the past 12 months General Dynamics doubled its IT services business to nearly $10bn in projected annual revenue through the CSRA acquisition and the roughly $4.2bn Perspecta emerged from the three-way merger of DXC Technology’s U.S. public sector business, Vencore and KeyPoint. A combination of SAIC and Engility comes out to $6.5bn in annual revenue, which puts it in front of the $6.3bn Booz Allen Hamilton, according to an investor presentation on the deal. SAIC contributes $4.6bn and Engility brings $1.9bn to that combination, the slides say.
SAIC expects to close the transaction by Feb. 1, 2019, the end of its current fiscal year. The deal remains subject to regulatory approvals and shareholder approvals from both companies.
Engility itself was a major player in consolidation as it acquired TASC nearly three years ago from private equity firms KKR and General Atlantic. Both investment groups took shares in Engility and seats on the board of directors. Earlier this year, KKR and General Atlantic exited a three-year lockup period that allowed them to start divestitures of their shares. Reuters reported in Julythat Engility was exploring a sale and that SAIC and CACI International expressed interest in a deal. Post-close, SAIC shareholders will own 72 percent and Engility shareholders will own 28 percent of the combined company. SAIC will also grow its board of directors by two seats with the additional members coming from Engility’s board.
SAIC CEO Tony Moraco and Chairman Sandy Sanderson will continue to lead the company post-close. SAIC is targeting $150m in annual gross cost synergies. Citigroup was lead financial adviser and Stone Key Partners was co-financial adviser to SAIC. Morrison & Foerster LLP served as legal counsel. Arnold & Porter provided financing legal counsel. Renaissance Strategic Advisors Ltd. provided business due diligence and strategy support services. Guggenheim Securities was lead financial adviser to Engility, and Weil, Gotshal, & Manges LLP and Bass, Berry and Sims PLC acted as legal counsel. Fairmont Consulting Group provided business due diligence services. Morgan Stanley & Co also provided financial advisory services to Engility. (Source: washingtontechnology.com)
08 Sep 18. A “Cash Windfall” for Intelsat from C-Band Networking. Chris Forrester of Advanced TV, a Senior Contributor to Satnews Publishers, notes that Intelsat’s proposal (with SES and Eutelsat) to see some of its C-band frequencies re-worked over the U.S. to help propel 5G cellular growth has rarely been out of the news — a report from equity analysts at investment bank Jefferies is extremely positive. No doubt coincidentally, Intelsat, on September 5, announced they would be raising up to $2.25bn of new debt via a tender offer, due for repayment in 2024, which will largely be used to repay existing obligations due 2020. Jefferies also said that Intelsat and SES are both looking to clear an additional slice of their spectrum (beyond the initial suggestion of 100 MHz) in their amended joint proposal, and with Intelsat’s CFO confirming that an initial $1 to $2bn will be funded to clear the existing spectrum, and more for the extra slice of bandwidth.
The bank’s note says, “Not surprisingly, the [Intelsat] CFO didn’t disclose what the figure could be (our published view is that 200 MHz will be brought forward). We’d further highlight: the Consortium has engaged with interested parties already and has no constraints that could prevent it from announcing a spectrum access agreement ahead of an FCC Order; the Consortium will not fund the cost to clear — it will come out of up-front cash held in escrow; management sees the wider industrial policy implications as comfortably trumping and “bad PR” of a windfall; Intelsat should be able to offset its c.$9bn of tax losses against any income/capital windfall; the Consortium agreement is in the final stages of drafting/negotiation.
“The first 100 MHz could yet require a new satellite (albeit it, a very cheap one, sub-$200m); while it is the broadcaster that is impacted by the Joint Proposal, the downlink antennas that actually needed to be touched are owned by the cable operators – this bifurcation talks to the fact that Intelsat/SES are positioned to effectively execute the changes need to clear the spectrum; CFO reiterated that to vacate the spectrum, the ground segment costs are a new filter (the cost measured in low-single digit $’000s) and a truck roll – the cable operator will undertake the truck roll (operators won’t want a third party tinkering with their head-ends) and the Consortium will reimburse.”
Jefferies have rated Intelsat as “Buy” with a target price of $32. Intelsat’s stock price on Sept 5th was about $21.53. (Source: Satnews)
————————————————————————-
Odyssey is an independent corporate finance firm which advises on acquisitions, business sales, management buy-outs and raising finance, typically in the £5m to £100m range. We have extensive experience in the niche manufacturing sector with our most recent completed deal being the sale of MacNeillie to Babcock Plc. Details can be seen at: http://www.odysseycf.com/case-study-macneillie/
As a result of this and related projects we have developed relationships with buyers and funders looking to acquire or invest in the sector. We would be happy to share further insights into the sector and to carry out reviews of businesses whose shareholders are considering an exit, acquisition or fundraise.
The review will include:
* Valuation
* Market review
* Comparative deals and structures
* Initial thoughts on buyers/ investors/ targets
* MBO viability
* Feasibility review and identification of any issues to be addressed pre-deal
There is no charge for this review.
If this is of interest we would be happy to meet at your convenience.
————————————————————————-