Appaloosa LP which manages funds holding more than 7 per cent economic interests in both SES and Intelsat submitted proxy proposals urging the SES Board of Directors to take immediate steps to address shortfalls in corporate governance, capital allocation and management accountability. Some of its suggestions contain highly critical comments.

Appaloosa, in a statement on February 27th, said: “As a long-term substantial shareholder of SES, Appaloosa LP supports the pending combination of the Company with Intelsat SA (in which Appaloosa also holds a comparable interest). We believe the merger synergies and the prospect of an infusion of senior management talent from the transaction address, in part, some of the Company’s challenges. Nevertheless, further changes must be made if the Company is to confront the present existential threat. SES must abandon an outdated status quo and forge a corporate culture that embraces commercial opportunity and eschews its history as a government ward.”

In detail, Appaloosa wants the superior shareholder structure at SES to be revised, noting: “Under SES’ current share structure, the Luxembourg Government directly and indirectly holds a separate class of shares (class B) that votes on a disproportionate basis to its economic interest in the Company (33.33 per cent voting rights vs. 16.67 per cent economic interest).”

“Perhaps this disparity may have been excused in the past when the satellite industry conducted business as a staid oligopoly of quasi-governmental incumbents shielded from material competitive threats. In the current context, however, the structure is an antiquated relic that disenfranchises shareholders and discourages investors and customers from taking the Company seriously as an authentic commercial enterprise. We therefore propose that the existing class B shares be converted into class A shares at a conversion rate of 0.4/1, resulting in a single ordinary share class with the Government maintaining a 16.67 per cent participation. The special rights attached to class B shares would also disappear in conjunction with the conversion. In their place, we believe the Lux Government’s legitimate interests in maintaining domicile, proportionate board representation and substantive operations in Luxembourg can be narrowly addressed through specific provisions added to the Company’s articles of association or by contractual agreement,” added Appaloosa.

But portions of Appaloosa’s note are highly critical, not least on the return given to shareholders. The company continued: “SES shares trade at a discount to their book value of more than 50 per cent and a dividend yield well into double-digits, notwithstanding a recent speculative rebound over a potential windfall from spectrum sales. Clearly, the marketplace is reacting to the Company’s (and industry’s) woeful record of deploying capital at sub-par returns, lackluster execution and inability to deliver on even its own often timid objectives. These price levels question both the long-term viability of the enterprise and whether shareholders will ever recapture capital trapped in a vicious cycle of poor investment. While benefits from the Intelsat acquisition may extend the runway, SES’ long-term prospects will be at risk until the Company can restore the market’s faith in its ability to manage capital.”

SES, in its reply, acknowledged receipt of the Appaloosa letter, and that the SES Board would “thoroughly evaluate the proposals and make its recommendation to shareholders in due course.”