Eutelsat Communications SA and OneWeb Ltd are set to combine in an all-share deal valued at the UK satellite operator at $3.4 billion, a step toward creating a European champion to rival the likes of Elon Musk’s SpaceX Is.
OneWeb shareholders will own 50% of Eutelsat, which will remain listed in Paris and be asked to be listed on the London Stock Exchange, the companies announced in a statement on Tuesday. The announcement confirms that talks became official on Monday and were first reported by Bloomberg last week.
The deal is the latest merger that has become a race by corporations and governments to provide faster connectivity via low-orbit satellites. Both the UK and French governments have stakes in OneWeb and Eutelsat, respectively, and the UK will continue to hold an exclusive stake, giving it some veto rights over strategic decisions such as the location of the firm’s headquarters.
Although shareholders will split the firm, the deal marks a takeover by Eutelsat. OneWeb will retain its own branding and operate the low-class business of the combined group, which will have a primary listing in Paris. Eutelsat President Dominic D’Hunin is set to be the chairman of the joint entity, with his OneWeb counterpart Sunil Bharti Mittal as co-chairman and vice president. Eutelsat CEO Eva Bernecke will run the new group. Mittal’s Bharti Global, which holds a 30% stake in OneWeb, will hold a 19% stake in the merged entity.
According to a UK government statement, the UK government has agreed to prioritize purchases for manufacturing from businesses in the UK for several national security rights and for OneWeb. The Board will have representation in both the UK and France.
Founded in 2012, OneWeb collapsed in 2020 when major investors pulled their money at the height of the COVID pandemic. The UK government under the guise of protecting potentially critical tech assets after Brexit, as part of a $1 billion partnership with Bharti Global in a deal pushed by Dominic Cummings, a former adviser to Prime Minister Boris Johnson proposed.
The companies said the deal would give Eutelsat a “unique position” in the market and has the potential to generate €1.5 billion ($1.53 billion) in investment and cost synergies, along with increased revenue.
Investor reaction to the deal was negative on Monday, with shares of Eutelsat falling 18% after deal talks were announced. Shares remained flat on Tuesday. Eutelsat will also suspend its dividend for two years after this year, to help pay for OneWeb’s next generation of satellite launches. Deutsche Bank analyst Roshan Ranjit said in a research note that the merger presents concerns about short-term cash burn and government contracts.
Eutelsat and OneWeb also have an inverse relationship with Russia. OneWeb said in March that it would use SpaceX to launch satellites after Russia blocked a planned deployment with French rocket company Arianespace SA.
Eutelsat continues to provide select satellite services to Russia, despite pressure from European regulators. According to its website, it reaches 50% of households in Russian and the surrounding region.
“Eutelsat has a policy of neutrality. We follow all restrictions. We have reduced the number of channels we broadcast,” Bernke told reporters on Tuesday.
Eutelsat, which originally agreed to pay $550 million in cash in April 2020 for a 24% stake in OneWeb, operates satellites from high geostationary orbit for customers such as government and TV broadcasters. These spacecraft provide quick connection speeds similar to low-orbit satellites.
The new company will combine Eutelsat’s geostationary Earth orbit satellites and OneWeb’s low orbit satellites. Berneke said Eutelsat’s “initial investment in OneWeb was driven by our strong belief that future growth in connectivity will be driven by both GEO and LEO capability.”
OneWeb shareholders will receive 230 million newly issued Eutelsat shares representing 50% of the increased share capital.
For the fiscal year 2022-2023, the combined entity is expected to have revenues of €1.2 billion and EBITDA of €700 million.
On Tuesday, Eutelsat published results showing a 6.7% decline in full-year revenue of €1.15 billion, in line with estimates.
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