By Patrick Nixon / Business News Americas

US equipment and satellite services provider Ech*Star Corporation will not go ahead with a US$374mn deal to buy a controlling stake in floundering Mexican satellite company Satmex as it failed to obtain the necessary approval from Satmex bond holders, Ech*Star reported in a statement to the US securities regulator SEC.

Ech*star said it was unable to reach agreements within the allotted timeframe to close the deal with more than half of Satmex's holders of first priority senior secured notes due in 2011 and second priority senior security notes due in 2013.

Satmex reportedly said in a statement that it continues to study strategic alternatives and restructuring options, and to maintain dialogue with its main shareholders and creditors.

Ech*Star, through a subsidiary called Ech*Star Satellite Adquisition LLC, announced on February 26 it would buy into Satmex through a joint venture with MVS Comunicaciones, Ech*Star's partner in local direct-to-home TV service provider Dish Mexico.

Ech*Star and MVS Comunicaciones were due to pay approximately US$267mn in cash, plus up to US$107mn in cash on Satmex's balance sheet at closing, resulting in a total of up to US$374mn for outstanding stock in Satmex.

José Otero, president of Signals Consulting told BNamericas that he is not surprised that the deal fell through, remembering that in the past that the same bond holders had been against investing in building a new satellite Satmex 7.

He also pointed out that during the previous attempt to sell the company in 2007, the bondholders were seeking US$500mn for the company.

Sergio Legorreta, a telecoms lawyer with Baker & McKenzie, told BNamericas that he sees it as unlikely Satmex will get a higher bidder, given that Satmex has an aging fleet, a heavy debt burden and a difficult economic situation in Mexico.

The Satmex fleet offers hemispheric and regional coverage throughout the Americas in both the C- and Ku-bands with its Satmex 2, 5 and 6 satellites. Satmex 5 is due to be replaced.

Satmex has a troubled recent history and in 2007 completed a restructuring process that left the formerly state-controlled company with 78% of its shares and 43% of its voting rights in the hands of creditors. However, the company needs to modernize its fleet to continue as a viable business model.

__________________