DoJ Vets Intelsat-PanAmSat Deal

Telecom Policy Report, May 29, 2006

The U.S. Department of Justice (DoJ) late last week essentially approved Intelsat Ltd.'s $3.2 billion proposed merger with PanAmSat Holding Corporation, clearing the way for the transaction review to be completed by the Federal Communications Commission.

In closing its antitrust investigation of Intelsat's proposed deal with PanAmSat, DoJ is not seeking any conditions on the merger nor is it commenting on the deal, effectively then agreeing that the would-be combination doesn't pose any competitive threats.

"With the Justice Department's decision not to challenge our transaction, we are moving full speed ahead with our integration planning and preparations," says David McGlade, Intelsat's CEO. "We will be finalizing our financing over the next few weeks and should be in a position to close soon after receiving FCC approval."

Intelsat and PanAmSat announced their merger agreement in late August 2005, and they filed asset-/license-transfer applications with the FCC a month later. The commission's pleading cycle for comments, responses and replies on some 10 licenses in question was completed by year's end, but it has been awaiting the DoJ decision. All other regulatory approvals required prior to closing have been obtained.

PanAmSat units are authorized to operate non-common-carrier fixed- satellite services (FSS) using the C and Ku bands along with numerous non-common carrier earth stations. At least five Intelsat subsidiaries have multiple U.S. C- and Ku-band space, earth station and other ancillary licenses and authorizations, including common-carrier status. Intelsat's fleet of satellites offers services in more than 200 countries.

Satcom Merger Particulars

Under the agreement, Intelsat will acquire PanAmSat for $25 per share in cash ($3.2 billion). In addition, approximately $3.2 billion in debt of PanAmSat and its subsidiaries will remain outstanding or will be refinanced.

Closing of the transaction is subject, among other things, to financing deals at Intelsat, which claims to have received commitments for the full amount of the purchase price from a group of institutions led by Deutsche Bank Securities, Citigroup Global Markets, Credit Suisse First Boston and Lehman Brothers.

The original target for closing was August 2006, and the companies say their combination will create the largest FSS operator in the world. The combined carrier would retain the name Intelsat, with McGlade as CEO and PanAmSat CEO Joseph Wright becoming chairman of the board. The combined company would operate a fleet of 53 satellites reaching 220 countries, and it's projected to have annual revenues in the $1.9 billion range.

The current businesses of Intelsat and PanAmSat are considered complementary. With video already a major activity of both carriers, the combined company also will work on developing other offerings such as Internet Protocol Television (IPTV).

PanAmSat investors include Kohlberg Kravis & Roberts, TC Group/Carlyle Group and Providence Equity Partners. Intelsat investors include Apax Partners Worldwide, Apollo Management, MDP Global Investors and Permira Advisers.

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