Eutelsat Communications SA is in talks about a combination with UK satellite rival OneWeb Ltd, a step toward creating a European champion to rival the likes of Elon Musk’s SpaceX.
Eutelsat and OneWeb shareholders will each hold 50 per cent of the combined group, with OneWeb shareholders receiving newly issued Eutelsat shares, the French company said in a statement Monday.
The deal, first reported by Bloomberg on Friday, could be valued at more than $3 billion, people familiar with the matter had said.
Macron’s wish
Speaking in front of European ministers in February, French President Emmanuel Macron said it was a “matter of sovereignty” to create a satellite offering that could rival Musk. Five months later, Macron could be getting his wish.
However, the deal faces a raft of potential hurdles. Eutelsat is heavily backed by the French state, while its fourth-largest shareholder is the China Investment Corp. sovereign wealth fund. The UK, also a major stakeholder in OneWeb, has been heavily scrutinizing deals involving foreign investors.
Within its statement on Monday, Eutelsat said that any deal would need all the relevant antitrust approvals, including foreign investment, and that there was no certainty a deal would be reached.
Eutelsat’s shares fell eight per cent following the announcement on Monday, the biggest drop in about eight months.
If the deal is successful, it could be the latest merger in what has become a race by corporations and governments to offer rapid connectivity via low-orbit satellites.
Europe has been attempting to build its own satellite system that would make it less dependent on Chinese and US technology.
At present, Europe is far behind. Starlink has a fleet of about 2,500 spacecraft launched in the last few years by Musk’s Space Exploration Technologies Corp. Amazon.com Inc.’s Project Kuiper is also planning a similar venture.
“If Eutelsat were to combine with OneWeb, we believe it should demand a bigger proportion of the merged entity than 50 per cent. Eutelsat already has a hedge against technology change via its commercial arrangement with OneWeb and its 23 per cent stake. The company generates significant cash flow, whereas OneWeb has little to no revenue and its main assets are probably its orbital slots and spectrum access,” said John Davies, BI media and telecoms analyst
Eutelsat, which originally agreed to pay $550 million in cash for a 24 per cent stake in OneWeb in April 2020, operates satellites for clients like government and TV broadcasters from higher geostationary orbit. This doesn’t offer the same quick connection speeds as those that focus on low-orbit satellites.
However, the UK has emerged as home to a surprise rival to SpaceX.
Founded in 2012, OneWeb collapsed in 2020 when lead investors pulled their money at the height of the coronavirus pandemic. The UK government put forward about $500 million as part of a $1 billion partnership with Bharti Global, in a deal pushed by Dominic Cummings, a former adviser to Prime Minster Boris Johnson, under the guise of protecting a potentially vital tech asset following Brexit.
The UK has since ceded ground. In November, US firm Viasat Inc. agreed to purchase London-based Inmarsat Group Holdings Ltd for $4 billion, creating the world’s biggest geostationary satellite company. Inmarsat had said last year that it planned to launch a constellation of low-earth orbit spacecraft and set up 5G wireless networks.
The new tie-up between OneWeb and Eutelsat is being branded as a merger of equals. As part of the proposed transaction, existing investors in OneWeb would continue to hold minority stakes, according to people familiar with the matter.
Relationships with Russia
It’s also a major distributor of Russian TV channels. Eutelsat’s and OneWeb’s have contrasting relationships with Russia. OneWeb said in March that it will use SpaceX to launch satellites after Russia blocked deployments planned with French rocket company Arianespace SA.
Eutelsat has continued to provide select satellite services to Russia, even after pressure from European regulators. It reaches 50 per cent of homes across the Russian and surrounding region, according to its website.
OneWeb’s future strategic decisions will also be under additional scrutiny.
A major customer of Arianespace, in December it said it would spend $3 billion shifting manufacturing from the US to the UK, according to local press reports.
OneWeb currently has a joint venture with Airbus SE—part owned by France and Germany—to manufacture satellites in Florida.