In a concerted effort to augment its presence in the in-flight connectivity market, Intelsat S.A. (INTEQ - Free Report) has inked a definitive agreement with Gogo Inc. (GOGO - Free Report) to acquire its commercial aviation business for $400 million in cash. The buyout will likely enable Intelsat to emerge stronger from Chapter 11 bankruptcy proceedings, while providing unhindered services to customers during the transition phase.
Gogo is one of the leading operators in the commercial aviation business segment, serving 21 commercial airlines, including 9 of the top 20 global carriers. The transaction will reinforce Intelsat’s in-flight capabilities by combining its next-generation, high-throughput space assets with Gogo’s 2Ku antenna to deliver cost-effective and advanced commercial aviation broadband connectivity services. The improved connectivity feature will further facilitate faster and reliable access to video-streaming services and cloud-based applications for superior customer service.
Intelsat intends to finance the deal through its existing debtor-in-possession financing facility and available cash. The transaction is likely to be completed by the first quarter of 2021, subject to customary closing conditions and mandatory regulatory approvals. Notably, Intelsat has filed for bankruptcy protection in order to raise cash and prepare the spectrum for public auctioning as it remains weighed down by the huge debt burden. The company expects to emerge stronger from this financial restructuring process, with greater fiscal viability to continue launching new satellites, building a comprehensive ground network and adding innovative services to its portfolio.
In concurrence with the bankruptcy filing, Intelsat has earmarked $1 billion in debtor-in-possession financing to sustain operations during the proceedings and make necessary investments to prop up the spectrum for the auction. The company is likely to incur about $1.6-$1.7 billion as expenses for infrastructure upgrades for migration to a higher-band spectrum. Intelsat expects to receive these upfront costs as reimbursements along with $4.87 billion in incentive payment for meeting the FCC’s deadlines of clearing 120 MHz of spectrum (3.7 to 3.82 GHz) by Dec 5, 2021, and the remaining 180 MHz (3.82 to 4.0 GHz) by Dec 5, 2023.
Moving forward, the company is focusing on five operational priorities, which are likely to stabilize its core business, improve competitive position, return it to growth and optimize asset value. Firstly, the company aims to leverage all assets within its global network for maximum return. Intelsat, which competes with Iridium Communications Inc. (IRDM - Free Report) , further intends to scale up its managed services across enterprises, maritime, business jet commercial and aeronautical government opportunities, and build powerful distribution channels to amplify its direct marketing efforts.
Additionally, the company expects to lead the industry in seamless implementation of satellite-based telecommunication solutions with state-of-the-art infrastructure. Intelsat aims to invest in the development of standards-based terminals and ground hardware, and innovative and software-defined technology. The company also intends to participate in 3GPP and other broad telecom sector standards development. In addition, it intends to maintain a disciplined stance on cash flow management and enhance the productivity of its deployed capital. Last but not the least, the company expects to optimize its spectrum rights to maintain sector leadership and provide regulatory and operational guidance based on market experience.
Intelsat presently has a Zacks Rank #3 (Hold). A better-ranked stock within the industry is Maxar Technologies Ltd. (MAXR - Free Report) , carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Maxar delivered a positive earnings surprise of 2.2%, on average, in the trailing four quarters.
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