Appaloosa Files Proxy Proposals for SES S.A.

Appaloosa LP (“Appaloosa”), which manages funds holding more than 7% economic interests in both SES S.A. (“SES” or the “Company”) and Intelsat, SA, submitted proxy proposals urging the SES Board of Directors (the “Board”) to take immediate steps to address shortfalls in corporate governance, capital allocation and management accountability.

Appaloosa issued the following statement in connection with the proposals:

SES today finds itself in a vastly more competitive environment than anything it has ever faced in its history. Indeed, this reality is not lost on the equity markets, which value the Company’s shares significantly beneath the lows of the Covid era. 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 SES must abandon an outdated status quo and forge a corporate culture that embraces commercial opportunity and eschews its history as a government ward.

To that end, we believe the following structural and governance measures merit urgent attention from the Board:

1. Modernize the Share Capital Structure

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% voting rights vs. 16.67% 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% 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.

The Government’s approval rights over new shareholders beyond certain thresholds, however, should be removed from the articles of association. Such rights are no longer appropriate in light of the Luxembourg law dated 14 July 2023, which we understand establishes a national screening mechanism for foreign direct investments and implements Regulation (EU) 2019/452.

As a result of these measures, the Government’s legitimate concerns can be addressed but its ability to disproportionately influence the Company’s business affairs curtailed. Ultimately, modernizing the Company’s capital structure to conform with international standards will contribute to SES’ continued viability and inure to the benefit of both public shareholders and the Grand Duchy of Luxembourg.

2. Modernize the Board Structure

The SES Board is configured for considerations that are no longer relevant today and fall well short of internationally recognized governance standards. Large boards are typically unwieldy and often fail to take timely action in a rapidly changing competitive environment. In particular, the current configuration is overly hierarchical and bureaucratic. The structure allows members to become entrenched, gives undue authority to the Government representatives and discourages board refreshment.

To foster a streamlined, nimble and effective governing body, we propose the following:

• Reduce the number of Board members to a total of no more than 9, with the Government receiving no more seats than its proportionate interest merits (i.e., 16.67%) on a rounded basis;
• Eliminate staggered terms and allow shareholders to elect each member annually;
• Eliminate the positions of Vice Chairman; and
• Formally adopt a policy and program of regular board refreshment, beginning with the appointment of new members to at least 2 of the seats.

3. Return Value to Shareholders

SES shares trade at a discount to their book value of more than 50% 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.

We believe the first step to restoring credibility is to implement a strict program of capital return to shareholders and adhere to it. It is also the best means of ensuring that SES shareholders participate in the Euro 2.4 billion of validated Intelsat synergies. We therefore propose that the SES Board adopt a policy of annually returning surplus capital, defined as the sum of opening excess cash and short-term investments plus operating cash flows and asset sale proceeds (including spectrum proceeds) generated during the year after allowing for:

			(1)		debt repayments necessary to reduce the ratio of gross debt-to-EBITDA (excluding on-going transaction-related expenses) to a threshold of 3.75x;
			(2)		capital investments necessary in the previous 12 months to maintain the Company’s existing GEO satellite network;
			(3)		the equity component of funds expended to complete the build-out of the Company’s existing MEO network; and
			(4)		the funds needed to complete the Intelsat stock purchase transaction pursuant to the Share Purchase Agreement dated April 30, 2024.

Appaloosa believes these proposals are critical to enhancing governance, capital deployment and management accountability in order to bring best-in-class standards to SES. Meeting these standards is a critical step in fostering a commercially proactive corporate culture, which is the Company’s best hope of surviving a competitive onslaught that is just now unfolding. We urge our fellow shareholders to support these proposals at SES’ upcoming Annual General Meeting of Shareholders.

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