Inmarsat Homes In On Smaller Rival Avanti

Two of the London‎ stock market's satellite operators are on course to collide in a potential £4bn takeover deal.

Sky News has learnt that Inmarsat (Other OTC: IMASF - news) has approached Avanti Communications (LSE: AVN.L - news) about a transaction that would help to consolidate an industry struggling amid a capacity glut.

The approach from Inmarsat was a preliminary one and talks between the two companies remain at an early stage, according to people close to the situation.

A number of other satellite industry players and private equity investors have also approached Avanti, they added.

Inmarsat, which has a market value of just over £3.5bn, dwarfs its smaller rival, which is capitalised at just £40m following an 87% slump in its share price over the last year.

Avanti's balance sheet also carries roughly $‎600m (£450m) of debt, with analysts expecting some form of restructuring of its borrowings, depending upon the outcome of takeover talks.

The company, which sells satellite data services to telecommunications providers, has established extensive coverage and is scheduled to launch Hylas-4, its latest satellite, next year, in an effort to complete its coverage of the Europe, Middle East and Africa region.

The global satellite industry is wrestling with a number of pressures even as demand for high-speed internet services‎ explodes around the world.

It (Other OTC: ITGL - news) has attracted the interest of some of the world's most prominent entrepreneurs, including Elon Musk of the electric car-maker Tesla and the Virgin Group tycoon Sir Richard Branson.

Analysts ‎said a takeover of Avanti, which is run by chief executive David Williams, would possess considerable logic for Inmarsat.

The two companies entered a strategic partnership in 2008, while Inmarsat would benefit from additional capacity for its Global Xpress high-speed broadband network, according to analysts.

Avanti said earlier this month that it needed to raise at least $50m (£38m) of new equity, and warned that if it could not secure or deliver substantial cost savings, it "may not have access to sufficient liquidity to meet its funding requirements through (to the second quarter of its 2017 financial year)".

Several days later, it said ‎its board had decided to engage with potential bidders, which it did not name.

The company is chaired by Paul Walsh, the former boss of drinks giant Diageo (LSE: DGE.L - news) and now chairman of Compass Group (Other OTC: CMPGF - news) , the contract caterer.

Its shares closed down nearly 6.5% on Friday.

Both Avanti, which is being advised by bankers at Jefferies, and Inmarsat declined to comment.