Hedge Funds Blink; Private Equity Firms Free to Take Control of Inmarsat

December 4, 2019 | Hedge Funds, Private Equity

A tense stand-off between activist hedge funds and private equity giants over British satellite company Inmarsat ended up a damp squib.

Activists Oaktree, Kite Lake and Rubric Capital had a change of heart overnight and withdrew their opposition to a deal that would hand over control of Inmarsat to private equity players.

As a result, a judge in London cleared the decks for the $ 6 billion buyout of Inmarsat. The acquirers are a private equity group led by Apax and Warburg Pincus.

Inmarsat: the activist viewpoint

Activists Oaktree Capital Management and others initially objected to the proposed buyout deal as it allegedly undervalued the spectrum assets used by Inmarsat’s US partner Ligado Networks. Oaktree has a 2.85% stake in Inmarsat.

The activists argued that a potential modification of Ligado’s license by US regulators could trigger contractual payments to Inmarsat. According to Oaktree, Inmarsat could be worth at least $ 300 million more in the event US regulators allowed Ligado to use its spectrum for 5G services.

Oaktree’s alleged intention was to delay matters until such time as US regulators approved of the spectrum.

However, the activists’ position weakened after the private equity bidders took a hard line. The acquirers threatened to scupper the deal if the judge accepted the activists’ viewpoint. Further, the private equity firms said they would not extend the transaction’s expiration date of December 10.

Their hands forced, the activist hedge funds backed down. They confirmed their new stand with a statement issued to the London Stock Exchange.

“Having considered our position carefully, we now no longer intend to raise objections to the scheme being sanctioned at the hearing,” they wrote.

Another name for a buyout transaction is “a scheme of arrangement.”

It can now move to a court meeting scheduled for Tuesday and Wednesday.

The M&A sector breathes a sigh of relief

According to investment bankers, had the activist proved successful in blocking the scheme of arrangement, it would be “unprecedented.”

That’s because once shareholders approve a scheme of arrangement, court approval is merely a formality.

A break of this tradition would undermine the long-standing takeover procedure in Britain.

[Related Story:  Inmarsat Rejects Oaktree’s Push to Delay Court Hearing   ]

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