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Potential Eutelsat, OneWeb Merge Raises Questions for Analysts

By | July 25, 2022
OneWeb Graphic

An artist’s rendition of the OneWeb constellation. Photo: OneWeb

Update: Eutelsat and OneWeb announced early Tuesday that they have signed an MoU to combine Eutelsat and OneWeb in an all-share transaction. Under the deal, Eutelsat shareholders and OneWeb shareholders would each hold 50% of the Eutelsat shares. Read the latest from Via Satellite.

On Monday, French satellite company Eutelsat announced it was in talks with OneWeb shareholders regarding a potential all-share combination that would see the two operators join forces. Under the terms of the transaction being discussed, Eutelsat and OneWeb shareholders would each hold 50% of the combined group’s shares. However, Eutelsat cautioned there is no guarantee any agreement will move forward.

Some industry analysts were surprised by the timing of OneWeb’s interest in such a deal, given the fact that Eutelsat is a shareholder in OneWeb,

Ben Lyons, a satellite equity analyst at Credit Suisse wrote in a research note that he expected OneWeb’s investors to allow it to remain a separate company until it started generating revenues. “…Eutelsat seems to be counting on the growth in the LEO [Low-Earth Orbit] space. In our LEO Disruption note, we laid out our expectation for the addressable market to reach about $9 billion in annual revenues with more than half of those revenues coming from B2C broadband in the U.S. and Western Europe, a market in which OneWeb does not compete. End markets we believe will be critical for OneWeb will be government and mobility,” said Lyons.

OneWeb currently has 428 satellites on orbit, 66% of its planned fleet. The company has activated service with its network at the 50th parallel and above, but hit a roadblock this year with its launch campaign with Arianespace at the Baikonur Cosmodrome due to Russia’s war in Ukraine. The company has not had a launch since Feb. 10.

Lyons also highlighted the interesting ownership issues at play. Eutelsat, a French company, increased its initial investment in OneWeb in October 2021, and has about a 23% investment in the company. Bharti Global is the largest shareholder at about 30%, and the U.K government owns about 19%.

“The potential deal is interesting from an ownership perspective as it could bring together the French government stake in Eutelsat (about 20%) and the U.K. government’s stake in OneWeb (about 20%) which could make them equal partners in the venture if it is a merger of equals,” Lyons said. “Earlier this year, [French] President Macron made a speech in which he stated the need for the EU to build a sovereign constellation, and post-Brexit it was not obvious that the U.K. would be involved. In fact, Thierry Breton previously made comments that the OneWeb stake at Eutelsat could impede the company’s ability to take part in the EU’s sovereign space strategy.”

Lyons may have been surprised at the timing, but Ivan Suarez, senior policy manager at Access Partnership was less so.

He told Via Satellite, “The news is indeed an interesting development, but it is not surprising. As you know, the space market is growing with lots of new players from all regions. In one way or another, the industry is bound to consolidate around a few major players to take advantage of synergies and efficiencies. We cannot comment on the wisdom of the transaction’s timing, but for sure both companies have valid reasons for pursuing this deal. The competition in this space is certainly heating up, and perhaps both companies just want to take advantage of the conducive market we have at present.”

In terms of whether this could be the catalyst for further consolidation in the sector, Suarez said, “There may be dozens of new players now, but as it is in every industry, it is the sizeable ones that will emerge victorious in the end. What we are seeing right now is perhaps the start of a wave of consolidation in the space industry that will leave us with a few big players battling for space supremacy. We don’t know how it will turn out, but we are surely in that phase already. For the users of these services, this is great news. The benefits of consolidation could translate to increased innovation, better services, and improved connectivity for everyone around the globe.”

Lyons, in Credit Suisse’s research note, highlights the costs involved in building capability to keep up with SpaceX/Starlink’s large fleet of satellites.

“Our view continues to be that the 1.1 Tbps of capacity available on OneWeb Gen 1 is underpowered versus Starlink and other constellations being planned by Amazon and Telesat and that it is critical they design and launch a second-generation constellation. The company to our knowledge has no debt financing, but also no revenues, and likely needs the cash from Eutelsat to be able to invest given that the high yield markets in Europe remain closed,” he wrote.

Lyons said that OneWeb Gen 1 has taken in almost $3 billion of equity financing since emerging from bankruptcy, and expects a more ambitious Gen 2 to cost closer to the roughly $10 billion spent by Amazon and SpaceX to launch larger and more capable constellations.