Xinwei to buy Spacecom despite Amos explosion

Shaul Elovitch
Shaul Elovitch

The Chinese company will pay $190 million, 50% more than the Israeli satellite company's market cap, but 33% less than previously agreed.

Spacecom Satellite Communications Ltd. (TASE:SCC) will be sold to Chinese communications corporation Xinwei for $190 million (about NIS 730 million), sources inform "Globes". That is 33% less than the parties agreed three months ago but 50% higher than the company's current market cap. The parties are to sign the agreement Thursday.

In August, Spacecom closed a $285 million sale deal with Xinwei, only to have the Amos 6 satellite destroyed in the SpaceX launch pad explosion in Florida a week later, and share prices plummet more than 50%. Nevertheless, the Chinese have not relinquished their acquisition plans and the parties reported that they examined the possibility of modifying the agreement and adapting it to the new situation. Spacecom's market cap is currently $128 million.

Grants to directors

Not only Spacecom's shareholders, mainly Shaul Elovitch (via Eurocom Group) are expected to reap the benefits of selling the company at such a significant premium on the market price. The completion of the deal with the Chinese will provide Spacecom executives with over NIS 10 million in grants: in the past, CEO David Pollack had been approved a NIS 3 million grant on completing a sale deal and a NIS 2 million retention grant if he stays in office for sixth months after its completion. Deputy CEO Itzhak Shnaiberg was to receive a NIS 3.3 million retention grant if he remains in office for 18 month after the deal's completion. In addition, Eight Spacecom VPs are expected to receive nine-salary retention bonuses if the deal is completed, also contingent on staying in office for 18 months.

In these sale talks, Spacecom has been represented by Adv. Avraham Well from the Fischer Behar Chen Well Orion & Co law firm, while Xinwei has been represented by Adv. Sarit Molcho from S. Friedman & Co. Advocates. Xinwei's operations include cellular communications, equipment sales and technical cooperation, as well as communications satellite operations. It is represented in Israel by Maj. Gen. (res.) Ami Shafran.

Another weak quarter for Spacecom

Yesterday, Spacecom reported its third consecutive weak quarter, after the explosion of the Amos 6 satellite. During a ground refueling of the satellite launch vehicle in the US Air Force Space Command facility in Cape Canaveral, Florida, an explosion resulted in the total loss of the satellite. This explosion was not Spacecom's first unfortunate incident: in 2015 it sustained a severe blow after it lost contact with the Amos 5 satellite and all services to satellite client were disrupted.

Spacecom today reported a net loss of $34.3 million in the last quarter, compared with a net profit of $3 million in the corresponding quarter. Spacecom's revenue shrunk 30.7% to $18.3 million in the third quarter, while operating losses were $29 million, compared with a $5.6 million operating profit in the corresponding quarter last year. In the first nine months of 2016, company revenue fell 35.3% to $52.1 million, while net losses were $34.8, compared with a $1.5 million profit in the corresponding period in 2015.

This loss followed a $34 million Spacecom set aside for Amos 6. The investment totaled $252 million, while compensation from insurance companies and Israel Aerospace Industries Ltd. (IAI) (TASE: ARSP.B1), with the deduction of reimbursement to the state for a cancelled contract, was $218 million. However, the main blow to the company was the loss of future payments for the satellite's services. Spacecom has said that it is acting to receive a reimbursement for its $50 million payment to launch company SpaceX, or alternatively to launch a future satellite "while realizing the existing agreement and the payments made thereof."

Amos 6 was to be Spacecom's main future source of income, with an orders backlog estimated at $345 million. One of the main deals cancelled following the explosion was Spacecom's $95 million agreement with Facebook. Last year, Spacecom reported that Amos 6 will be used by Facebook for one of its main projects in recent years - connecting African countries to the internet.

Spacecom is controlled by Shaul Elovitch (64%, via Eurocom) and currently holds three active satellites - Amos 2, Amos3 and Amos 4 - used to provide communications services. Amos 2 is approaching the end of its service period and is to stop operating in the second quarter of 2017. In Spacecom's 2015 statements, Amos 3's remaining lifespan was estimated to be 10 years, while Amos 4's was estimated at 13 years. Spacecom has $404 million liabilities, most of them for issued bonds, traded at 2.5%-5.5% yields. Its equity is $118 million.

Published by Globes [online], Israel business news - - on November 29, 2016

© Copyright of Globes Publisher Itonut (1983) Ltd. 2016

Shaul Elovitch
Shaul Elovitch
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