Broadcasting Losses: An image of retirement insecurity

The “Zeus Holdings” Buyout of Intelsat

In 1969, millions of Americans were glued to their televisions, watching the first men to walk on the moon. Those images were made possible by a relatively new company called the International Telecommunications Satellite Consortium (Intelsat), originally an intergovernmental organization created by more than 100 nations. In the following decades, employees of Intelsat continued to improve telecommunications technology—bringing Olympic Games, World Cup matches, and the royal wedding of Charles and Diana to billions of television viewers. In 2001, Intelsat became a privately owned company, and three years later was acquired for $5 billion by a consortium of private equity firms—Apollo Management, Apax Partners, Madison Dearborn Partners and Permira. The consortium invested $515 million of their own money in the deal and called themselves “Zeus Holdings.”

The new company went to work slashing labor costs, reducing the workforce by 18 percent between June 2004 and September 2005 and allegedly refusing to honor retiree medical benefits, claiming that promises to retirees made by the previous board do “not create obligations that are enforceable” against the present company, according to litigation filed in 2004. A retiree reported to The Wall Street Journal that these benefits are worth $75 million.

In March 2007, Intelsat agreed to provide a new health plan for the retirees, to cover their “mental, dental, prescription drug and vision benefits.” Intelsat also agreed to reimburse the retirees and their dependents for any out-of-pocket expenses exceeding the premiums under the prior plan, if made during the gap in coverage. The settlement is subject to approval of the court, which is expected in July 2007. Once approved, the retirees will also be entitled to up to $200,000 in attorneys’ fees to cover the cost of the litigation.

By the end of 2005, a little more than a year after the acquisition the cost cutting freed up enough cash flow for the private equity consortium to add more debt to the company’s balance sheet and pay themselves a total of $548.8 million in special dividends, more than their original investment while still owning the company outright.