What happened
Shares of Gogo (GOGO -4.10%) have skyrocketed today, up by 27% as of 11:45 a.m. EDT, after the in-flight internet service provider announced a deal to sell its commercial aviation (CA) business. Gogo confirmed last month that it was looking to divest the division and had engaged several interested parties.
So what
Satellite communications specialist Intelsat (INTE.Q) has agreed to purchase the CA segment for $400 million in cash. Intelsat filed for Chapter 11 bankruptcy earlier this year as a way to restructure its heavy debt load and enabling the company to participate in a spectrum clearing program through the Federal Communications Commission that could help raise billions of dollars.
Image source: Getty Images.
As part of the bankruptcy, Intelsat secured a $1 billion debtor-in-possession financing commitment from lenders, and last week requested the bankruptcy court for permission to acquire another company -- 2020 has been a strange year for bankrupt companies! -- which it did not specify at the time. Now we know that Gogo's CA segment is the acquisition target.
Now what
For Gogo, the bankruptcy drama doesn't matter too much as long as the transaction can close. The deal will be funded by Intelsat's cash on hand in addition to that $1 billion debtor-in-possession credit facility. Gogo notes that the acquisition has secured support from several key economic stakeholders, in addition to getting the bankruptcy court's blessing.
Gogo plans to use the proceeds to improve its own debt position while investing in 5G. In connection with the deal, Gogo will enter into a 10-year network services agreement giving Intelsat access to Gogo's ATG services, which will include minimum revenue guarantees of $177.5 million. The transaction is expected to close before the end of the first quarter of 2021.
