Officials at Lockheed Martin Corp. and Comsat Corp. declared their satisfaction yesterday with a congressional compromise that could allow the two Bethesda companies to join forces. Analysts, however, said the future of the proposed Lockheed-Comsat merger is far from clear.
The compromise, hammered out late Thursday by members of the House and Senate Commerce committees, would allow Lockheed to complete its proposed $2.5 billion purchase of Comsat.
Lockheed bought 49 percent of Comsat on Sept. 18, but needs congressional approval to acquire the rest.
"It's language we're comfortable with. It's language we can support," said Lockheed spokesman Charles P. Manor III.
The draft legislation, which reconciles differences between the House and Senate satellite-reform proposals, would also strip Comsat of many of the powers and privileges the company has enjoyed since it was founded by an act of Congress in 1962.
That did not trouble Comsat President and Chief Executive Officer Betty C. Alewine, who agreed to sell the company in September 1998. "Obviously, we're pleased by the rapid progress this year on satellite legislation," Alewine said in a conference call yesterday.
Comsat has benefited from being the United States' only provider of access to two major satellite networks, Intelsat and Inmarsat, both of which are owned by the official representatives of their various member nations. Comsat is the U.S. representative, and owns more than 20 percent of both networks.
As the satellite-communications industry has become larger, more lucrative and more competitive, there has been increasing pressure to change this system.
The compromise drafted by Sen. Conrad Burns, a Montana Republican, and Reps. Tom Bliley, a Virginia Republican, and Edward J. Markey, a Massachusetts Democrat, would allow other communications companies, such as AT&T; Corp., to gain access to Intelsat without going through Comsat.
AT&T; and its rivals would not be able to directly purchase shares of Intelsat. This provision is a major concession to Lockheed's desire to retain some of Intelsat's unique value.
The draft bill would require Intelsat to privatize by April 2001. The network is to conduct an initial public offering of stock around Oct. 1, 2001, a date that could be pushed back as far as Dec. 31, 2002, if the stock market goes into a tailspin. As an incentive, Intelsat would be barred from offering certain crucial high-capacity and direct-to-home satellite services until it privatizes.
Tom Burnett of Merger Insight in New York called the accord "a huge step," but cautioned that in its present form, members of both houses of Congress may seek to alter or defeat the proposal. A conference committee will begin its assessment of the draft when Congress returns to session March 2. Lockheed's Manor said he expects the acquisition to close by late summer.
"It's not all over," said Burnett. "We don't even have anything in Congress but an agreement to agree. We don't even have a bill."
Some analysts have expressed their misgivings about the decision by financially troubled Lockheed to jump into an industry as competitive and capital-intensive as telecommunications.
"Strategically, I don't think many people on Wall Street thought it was a great idea for them to get into that business," said Sam Pearlstein, an analyst for ING Barings LLC in New York. "But it's better to own 100 percent than to be stuck with 49 percent, so in that sense this compromise is a good thing."
Paul H. Nisbet of JSA Research Inc. in Newport, R.I., said even if the deal closes successfully, Lockheed may try to sell its communications holdings to help reduce the company's $12 billion debt.
"They've got a tremendous need to get that debt of theirs paid down," Nisbet said. "They can't do that and get this thing [the telecommunications venture] off the ground by themselves at the same time."
Lockheed's stock slipped 56.25 cents to close at $17.4375. Comsat edged down 37.5 cents to $16.5625.
Yesterday, Comsat released what may be its final earnings report as an independent company.
For the fourth quarter, which ended Dec. 31, Comsat had a net loss of $8.2 million, or 15 cents a share, after a write-off of its investment in ICO Global Communications Ltd.
Without the write-off, profit was $12.7 million, 24 cents per share. In the comparable period of 1998, net income was $11.9 million, 22 cents a share.
Revenue was flat at $162.2 million vs. $162.3 million in 1998.
Comsat tallied a $2.6 million net loss for 1999, equivalent to 5 cents per share. Excluding the ICO write-off, Comsat earned $41.7 million, or 79 cents per share.
In 1998, Comsat's net income was $26.4 million, or 50 cents per share.
Revenue was $618.3 million, up from $616.5 million in 1998.