Adviser dismisses Inmarsat ‘controversy’

A lawyer advising the management team of UK satellite operator Inmarsat on its sale to private equity firms has criticised newspaper reports referring to a ‘controversial’ bonus payment.

The pending sale of Inmarsat, the UK satellite operator, includes a bonus agreement struck with potential financial buyers that has aroused controversy. But a leading lawyer acting on the deal has dismissed claims that shareholders are being shortchanged.

Weekend reports said the sale, which is set to generate proceeds of over £900m, included a £1m one-off payment for Inmarsat chief executive Michael Storey if the business is sold to Apax Partners and Permira, together with a return on his personal equity stake of up to £25m on exit. They also referred to an expected £125m equity upside for the firm’s 13-strong board. The Financial Mail suggested shareholders were ‘irate’ at the prospect.


“The people picking up on this have not understood the way these deals happen,” said Chris Hale, managing partner at City law firm Travers Smith Braithwaite. “The one-off payment referred to is an exit bonus arrangement for a successful sale. It is put in place because shareholders want to incentivise management to get a good exit price and is very commonly used.”


Hale added that the substantial return on investment for management that the reports referred to was also ‘exactly what you’d expect’ if the business achieved certain performance criteria and was sold for a ‘very good’ price in a few years’ time.


However, Hale said the figures used in the Financial Mail report were misleading because even as the adviser to the management team, he himself did not yet know exactly what figures are involved but admits they are ‘probably not far off the mark’. He says negotiations are still ongoing regarding details of the purchase agreement.


Inmarsat is currently the subject of a bid battle, with Apollo Management and billionaire financier George Soros tipped to trump Apax and Permira with an offer of around £940m.  


Hale was also critical of reports that pointed to shareholder unease at the close relationship between Debenhams’ management and a consortium led by Permira. “Now CVC and Texas Pacific have entered the bidding process that argument holds no water because you have competitive tension.”


Both the Inmarsat and Debenhams auctions have drawn attention to potential conflicts of interest between management teams and shareholders in private equity-backed privatisations. In the case of Debenhams, in an unusual move intended to ensure Debenhams was being sold through a competitive bidding process, the company’s board agreed to foot the bill for due diligence being conducted by both bid consortia.


Had CVC and Texas Pacific subsequently failed to submit a counter-offer to its rival, Debenhams might have been left open to charges of failing to maintain a competitive sales process and hence of failing to act in the best interest of shareholders.