Revised offer is believed to be too low with company recognising improved prospects on horizon.
Shares in Inmarsat descend 10% as it snubs latest bid from EchoStar
- Shares in Inmarsat drop 10% as investors take view that no deal is now possible with American satellite group approaching 4pm deadline
- Revised offer believed to be too low since Inmarsat is in recovery process and certain markets showing improved prospects
- We continue to recommend Inmarsat as a ‘buy’ for higher risk investors
Inmarsat shares continue their rollercoaster ride, dropping 10% this morning, on the back of news that EchoStar’s revised and higher offer of 265p in cash and 0.0777 new EchoStar shares, equivalent to 532p has again been snubbed by its management. The share price has fallen off as investors take the view that no deal is now possible since the deadline is 4pm this afternoon. However, investors should note that the American satellite company is seeking an extension to this deadline with the hope to have more dialogue with Inmarsat’s board.
Inmarsat remains a compelling strategic asset for EchoStar as it will complement their existing portfolio and offer some cost synergies. However, we believe that their revised offer is still on the low side especially since Inmarsat is in the recovery process after a difficult few years and certain markets it serves show improved prospects. Indeed, the offer price is lower than what the shares have been trading at recently after a potential second bidder emerged but then disappeared again. Should EchoStar fail to capture a deal now, which seems most likely, it will be barred for another six months and in that period a rival could once again emerge with a better offer.
Aside from the takeover activities, Inmarsat remains an attractive investment on a number of fronts. The marine division has been weak in recent years but improvements in the energy market should in time feed through to more investment spending. Meanwhile, communication on the go, especially for inflight broadband services, will only see demand rise with time for which Inmarsat is well positioned.
Should a takeover fail, then we see a prospect for some longer term recovery for Inmarsat. However, the current activity sets a base case valuation for the shares for which any new bidder will have to at least match. We therefore continue with our ‘buy’ recommendation for investors seeking a balanced return and willing to accept a higher level of risk.
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