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PanAmSat CHIEF PREEDICTS SHRINKAGE

18 Apr 05. The FT reported that overcapacity in the global satellite market, combined with greater financial discipline due to the number of stakes owned by private equity investors, will push consolidation in the sector, according to the chief executive of PanAmSat, one of the world’s biggest operators.

Joseph Wright, in his first comments since the initial public offering of PanAmSat last month, said the number of satellite companies would shrink from the 38 currently operating.

“Already, two-thirds of the industry’s revenues sit with four companies,” Mr Wright said. “The other 34 companies are, to some degree, all having a difficult time. There are many opportunities for consolidation – we now have a currency to be at the forefront of this.”

PanAmSat is the first fixed satellite services company to list in the US and, with a number of its rivals also planning to go public, its performance could determine the speed at which others follow. Inmarsat, New Skies Satellites and Intelsat, all owned by private equity investors, are making plans for IPOs.

The PanAmSat listing was the latest example of a “quick-flip” by private equity investors. Private equity firms bought PanAmSat less than a year ago and have already recovered all their money. So far, however, together with a backdrop of falling equity markets, the PanAmSat IPO has failed to inspire. The price was cut to get the IPO done and has not risen above its $18 launch price. On Friday the shares closed in New York at $17.40.

“The performance may delay the other deals a little bit,” said a private equity investor in the sector. Mr Wright said he was not too concerned about the share price. The satellite market has limited growth prospects due to the high levels of capacity.

PanAmSat focuses particularly on providing satellite feeds to media content companies – a market that is healthy, particularly in the US due to the growth in content distribution via cable, satellite and telecommunications companies. Rivals focusing more on telecoms are facing downward pricing pressure.

One of the controversial aspects of the PanAmSat IPO was the 65 per cent dividend that will be paid out of free cashflow to its private equity owners. Some industry executives have criticised the payout level, arguing this would reduce the money available for capital expenditure and investment. However, Mr Wright said the dividend level was set after accounting for investment needs.

“We are still operating on a replacement cycle. There is too much overcapacity in the industry to invest in satellites other than for replacement.”

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