Echostar highly likely to bid for Inmarsat, says RBC
US satellite company Echostar is likely to make an initial offer of around 650p a share for London-listed rival Inmarsat, RBC Capital Markets said on Wednesday as it reiterated its 'outperform' rating on the stock.
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RBC said there is a "very high" probability that Echostar - which has until Friday to make a formal bid for Inmarsat or face a six-month ban - will make an offer.
RBC argued that Echostar would gain nothing by delaying the process six months and would risk either a White Knight or other bidder, and/or losing the battle for Ligado by the time it gains control of Inmarsat.
"Failure to make a formal bid would result in a six month delay. While the share price would be very likely to fall immediately, it may well recover substantially in the following six months especially if Inmarsat can pull off the Chinese deal, or Ligado were to gain approval," RBC said.
It added that if that were the case, Echostar's chairman and co-founder Charlie Ergen may lose the opportunity to purchase Inmarsat.
"In any case, he would have wasted six months and would then be starting at the same point he is now. A rival bidder could use the six months to manoeuvre itself into pole position, or act as White Knight to Inmarsat. Furthermore a six month delay (plus the time to bid again), may mean the battle for Ligado has already played out by the time Echostar gains control."
The bank sees a 60% probability of an initial offer of 650p a share, 20% chance of a "low-ball" offer of less than 600p and 20% probability of a "knockout" offer. Ultimately, however, it reckons that Echostar will need to offer up around 750p to gain any board or shareholder approval for a deal.
"Given the political backdrop (sensitive satellite infrastructure) we believe Echostar is likely to need a recommended offer as a hostile bid could allow the company to seek political protection," it said.
Inmarsat shares rocketed last month after the company confirmed it had received and rejected a "highly preliminary" takeover proposal from Echostar on the basis that it "very significantly" undervalued the group. Since then, it has emerged that Echostar has taken a 3% stake in Inmarsat and a 10.4% stake in its convertible bonds.
At 1030 BST, the shares were up 3.6% to 529.71p.