(Alliance News) - Inmarsat PLC said Wednesday responded to concerns from shareholders around its recommended acquisition by Connect Bidco Ltd, namely that the acquisition does not take into account potential future income from Ligado Networks LLC (US) and Ligado Networks (Canada).
Inmarsat in March agreed to a GBP3.4 billion takeover by Connect Bidco, a consortium including private equity firm Apax Partners LLP, Warburg Pincus International LLC, the Ontario Teachers' Pension Plan Board, and the Canada Pension Plan Investment Board.
A court hearing to sanction the proposed takeover of the satellite communications company is scheduled for November 28 and 29.
Inmarsat said it has provided evidence in connection with this court hearing to a law firm which represents "certain contesting shareholders".
Such shareholders have raised concerns over the potential for communications group Ligado to obtain a licences modification from the US Federal Communications Commission and how this might impact the acquisition, including whether Inmarsat would still recommend the proposed scheme of arrangement if the modified licence was granted.
Ligado wants to use satellite frequencies which are near the GPS band for its terrestrial 5G networks but has struggled to get approval over concerns this may interfere with GPS receivers.
Inmarsat said it has considered its fiduciary duties in recommending the scheme and proceeding with the court hearing and has fully complied with all laws and regulations in connection with the deal. The company said it is monitoring the situation with Ligado and assessing Inmarsat's value including revenue from its Ligado cooperation agreement.
In Inmarsat's view, the licence would not materially change Inmarsat's valuation as potential income from the agreement is still uncertain given the expected terms of the licence modification - should it be granted - plus the refinancing of Ligado's debt, which has a principal amount equivalent to USD4.6 billion as well as interest.
Further, income from Ligado would also require that Ligado obtain enough funding and generate sufficient free cash slows to sustain both the business and its debt portfolio and make payments to Inmarsat on a sustainable long-term basis.
While Inmarsat had considered a contingent value right in assessing the acquisition's terms, it said Connect Bidco's offer already reflects possible Ligado payments. Further, it would be difficult to structure a CVR and such a CVR would have altered the acquisition terms, including the cash consideration for Inmarsat. As such, Inmarsat still recommends the Connect Bidco offer as it stands.
Earlier in the day, Inmarsat said its profit fell in the third quarter due to a lack of revenue contribution from Ligado.
Revenue decreased 11% to USD327.3 million in the three months to September 30 from USD369.3 million in the third quarter of 2018, reflecting the cessation of payments from Ligado and a 5% decline in maritime revenue.
As a result, pretax profit dropped 84% to USD36.1 million from USD227.7 million a year before.
"Should Ligado obtain its [US] Federal Communications Commission license modification during the fourth quarter of 2019, payments are contracted to resume from such date," Inmarsat said. Otherwise, payments are contracted to resume from the beginning of 2020.
The company said it "has not recognized any material revenue from Ligado due in respect of 2019 given the level of uncertainty of collection of those monies".
Chief Executive Officer Rupert Pearce said: "Inmarsat produced a solid performance in the quarter, supported by our diversified growth portfolio, as we remain focused on growing market share in our target markets."
Inmarsat shares were down 0.3% at 554.60 pence in London on Wednesday.
By Loreta Juodagalvyte; loretajuodagalvyte@alliancenews.com and updated by Anna Farley; annafarley@alliancenews.com
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