Eutelsat and OneWeb flesh out merger plans

Confirmation came yesterday that the satellite firms Eutelsat and OneWeb are looking to merge, and further details have now emerged as to what an entity with their combined assets would look like.

Eutelsat and ‘key OneWeb shareholders’ have signed a Memorandum of Understanding with the objective of combining both companies in an all-share transaction. Eutelsat will be bringing its 36-strong fleet of GEO satellites to the table of the new entity, which will compliment OneWeb’s constellation of 648 Low Earth Orbit satellites, 428 of which are currently in orbit.

It’s presented very much as a merger but on paper Eutelsat is buying OneWeb. The transaction would be structured as an exchange of OneWeb shares by its shareholders (excluding Eutelsat, who is a major investor in the firm already) with new shares issued by Eutelsat. In plain English this means that Eutelsat would own 100% of OneWeb, excluding the ‘Special Share’ of the UK Government.

Should it go through, OneWeb shareholders would receive 230 million newly issued Eutelsat shares representing 50% of the enlarged share capital. The firms are betting that the combination of GEO satellite’s network density and high throughput combined with the low latency and ubiquity of LEO satellite’s will make a stronger proposition when working in unison. They’ve made some predictions on cost savings as well.

They estimate average ‘annual revenue synergies’ will be €150 million after four years, while synergies from joining organizational forces are expected to generate annual run-rate saving of over €80m pre-tax after five years, mostly through cost duplication avoidance. Capex optimization is expected to generate average savings of €80 million per annum, and there’s a lot of emphasis made on the benefits of leveraging the hybrid GEO/LEO satellite infrastructure and through the improved purchasing power of the combined entity. All calculations taken into account, the firms say a new combined entity would equate to a net present value of over €1.5 billion after tax, and would have revenues of around €1.2 billion and in FY22-23.

“Having played a pioneering role in providing connectivity in the emerging world, I am excited about the possibilities of connecting the unconnected,” said Sunil Bharti Mittal, OneWeb’s Executive Chairman. “The combination of Eutelsat and OneWeb represents a significant development in that direction as well as a unique GEO/LEO combination. The positive early results of our service together with our strong pipeline represent a very exciting opportunity in the fast-growing satellite connectivity segment, especially for customers requiring a high speed, low latency experience.

“Our customers are actively seeking a combined GEO/LEO offering leading us towards this important step. Bharti, as the lead shareholder of OneWeb, along with other key shareholders, is looking forward to playing a meaningful role in providing expanded connectivity through the combination of OneWeb and Eutelsat.”

Eva Berneke, Eutelsat’s Chief Executive Officer added: “Our initial investment in OneWeb was underpinned by our strong belief that the future growth in Connectivity will be driven by both GEO and LEO capacity. This belief has intensified as our relationship with OneWeb has deepened, first by raising our stake in the company, and then with the global distribution agreement signed a few months ago. We are now moving to the next level, with a full combination that will ensure the potential of the GEO/LEO integration is fully realized, supported by compelling financial, strategic, and industrial logic. This ground-breaking combination will create a powerful global player with the financial strength and technical expertise to accelerate both OneWeb’s commercial deployment, and Eutelsat’s pivot to Connectivity.

“The combined entity will be geared towards profitable growth, with strong medium-term cash flow generation and a rapid deleveraging driven by strong forecast EBITDA growth. The benefits for our customers and strategic partners, who are at the center of our strategy, are both significant and unique. This is also a very exciting opportunity for our employees who will be key to the success of this transformation.”

As alluded to in the quotes above, the two firms are already somewhat intertwined. Eutelsat made an equity investment in OneWeb in April 2021, and a global distribution agreement in March 2022, which was pitched as a move to allow the two firms to develop combined GEO and LEO ‘connectivity solutions.’ In October 2021 Eutelsat exercised a call option on a portion of the latest OneWeb funding round to enable it to increase its holding to 22.9% from 17.6% previously.

In terms of next steps, the boards of both firms have signed off of the deal and it now needs to go through the relevant regulators and Eutelsat shareholders, which it expects to take place by end of first half 2023.

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