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Less than two months after Congress erased restrictions that would have barred Intelsat Ltd. from carrying out plans to acquire New Skies Satellites NV, the satellite behemoth ditched that deal for a much bigger opportunity. Intelsat announced Monday it intends to pay $6.4 billion to acquire PanAmSat Holding Corp. and form the world’s largest satellite operator. The merger is likely to face a long and thorough regulatory examination by the Federal Communications Commission and the Department of Justice. “This is going to be a serious review because these companies have overlapping markets,” said Andrew Lipman, partner at Swidler Berlin in Washington. Lipman said he expects regulators to take between six months to eight months to complete their review. The companies said the review could take up to a year but held out hope they could get necessary approval within six months. Regulators are unlikely to block the deal outright, but antitrust lawyers familiar with the satellite business say the possibility of major U.S. divestitures might be enough to discourage the two satellite companies from completing the transaction. The merger would leave a duopoly in the skies over North America, between Intelsat and SES Americom Inc., a unit of Luxembourg-based SES Global SA, which regulators might view as anti-competitive. The merged Intelsat would have about 20 satellites serving the continent. SES operates 15. To counter that worry, Intelsat is likely to argue the merging companies operate largely distinct businesses. PanAmSat receives about two-thirds of its revenue from trafficking video transmission for television networks and about half of its business in the United States. Intelsat, by contrast, has traditionally made its money in the telephony and data transmission areas, and it has had a much larger international presence. Intelsat has said it plans to expand into video transmission area and could grow the business from scratch, making it likely the two companies would compete more in the future should they remain separate. In line with that strategy, Intelsat in 2004 bought five satellites and an empty slot over North America from Loral Space & Communications Ltd. Intelsat, however, is likely to argue that building a new business against two entrenched rivals now is impossible. PanAmSat and rival SES each control roughly half of the video distribution market in the U.S. while Intelsat holds a much smaller share. Intelsat’s acquisition of PanAmSat would reduce the number of players in the video distribution market to two from three, which “could be a cause for concern from an antitrust perspective,” Bear, Stearns & Co. warned. Anticipating that the government will require divestitures, Intelsat was expected to file documents with the Securities and Exchange Commission late Monday detailing plans to sell three of the five satellites it acquired from Loral. An analyst who requested anonymity speculated that Intelsat may need to sell all the Loral assets and that its former takeover target New Skies could be a likely candidate to buy those assets. (Sources confirm that Intelsat and New Skies were in discussions about a potential transaction before its talks with PanAmSat.) But Roger Rusch, president of satellite consulting firm TelAstra Inc. in Los Angeles, said he expects regulators to approve the deal because the satellite market is overly competitive with many orbiting satellites being used below capacity. “Overcapacity is a real problem in this industry that I think regulators recognize,” Rusch said. “As long as there are two suppliers to the U.S. market, there shouldn’t be an issue.” In the past five years, excessive capacity has led to sharply falling prices and reduced revenue, satellite consultants say. During a conference call Monday, executives with the merger partners said regulators should look beyond satellite companies when assessing the amount of competition for telecommunications transmission. For instance, operators of land-based fiber networks have helped force down satellite industry margins. “Our biggest competition right now is from fiber,” PanAmSat CEO Joseph R. Wright Jr. said. Copyright �2005 TDD, LLC. All rights reserved.

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