British Satellite Broadband Operator OneWeb and Eutelsat to Merge UPDATE2

Satellite broadband firm OneWeb, which is British-registered and partly owned by the UK Government, is about to sign a merger deal with existing investor and rival French operator Eutelsat. But the UK is understood to have secured a number of concessions to help protect its strategic investment.

So far, OneWeb has already managed to launch 428 of their small c.150kg Low Earth Orbit (LEO) based ultrafast (100Mbps+) and low-latency (sub-100ms) broadband satellites into space – orbiting at an altitude of around 1,200km – and their initial plan is to build a constellation of 648 (588 are needed for coverage – the rest are for redundancy), which is enough for a reasonable level of global coverage.

The company also has approval for a total of 2,000 satellites (although they’re seeking to go beyond that) and 1,280 of those will be a second-generation model that could sit in a higher Medium Earth Orbit (MEO) of 8,500km, which are widely expected to introduce enhanced navigation and positioning features. The UK Government are quite keen on that due to the post-Brexit loss of full access to the EU’s Galileo system. But we won’t see the first non-trial MEO satellites until 2024-25.

However, launches of new LEO satellites have recently suffered a big delay due to the war in Ukraine (here), but they’re due to resume via new launch partners before the end of this year (SpaceX and New Space India Limited etc.). Nevertheless, OneWeb will still need much more investment if it is to achieve their future plans and stay competitive with rivals like Starlink (SpaceX), which is where the new deal with Eutelsat may come into play (they already hold a 24% stake).

At present OneWeb’s biggest shareholders are Bharti Global, Eutelsat, the UK government ($500m), SoftBank, Hughes and Hanwha. But reports over the weekend (FT, Guardian etc.) have indicated that Eutelsat, which is partly supported by investment from the French and Chinese governments (20% and 5% respectively), is about to sign a major merger deal with OneWeb.

Naturally, this poses a politically awkward problem for the UK Government, which alongside Bharti helped to rescue OneWeb from bankruptcy in 2020 and still holds a golden share in the company. But such a deal could not go ahead without getting the Government’s approval, and they’ve reportedly negotiated some key concessions (this largely retains their existing rights).

Reported Concessions to the UK for OneWeb Merger

➤ The UK will retain a veto on sales of services that could post a risk to UK national security.

➤ A veto over any decision to shift OneWeb’s HQ out of the UK.

➤ The UK will hold first-preference rights over supply chain, manufacturing and launch opportunities that might be covered by UK companies.

➤ Shares will be launched on the London Stock Exchange (LSE) as part of a secondary listing in the near future.

All of the above points are key for the government, particularly given their long-stated desire to implement navigation and positioning features into the mega constellation, as well as any plans to move the manufacturing base for future satellites from the USA to the UK (here). But as above, this is a long process, and they’re only now beginning design work on the future satellites, with manufacturing being unlikely to follow until 2024-25.

On the flip side, Eutelsat will benefit by securing a quicker route into the relatively new market for LEO based communication satellites, which will be able to complement their existing fleet of larger satellites in a high geostationary earth orbit. Eutelsat’s latest Very High Throughput Satellite (VHTS) is due to launch in September (here).

The weekend reports claim that a deal could be signed as soon as today, and we’ll update this article accordingly, if that happens.

UPDATE 1:18pm

Eutelsat has just confirmed the talks, if not a deal.

Eutelsat Statement

Following recent market rumors, Eutelsat Communications (Euronext Paris: ETL) confirms that it has engaged in discussions with its co-shareholders in OneWeb regarding a potential all-share combination to create a global leader in Connectivity with complementary GEO/LEO activities.

The combined entity would be the first multi-orbit satellite operator offering integrated GEO and LEO solutions and would be uniquely positioned to address a booming ~$16bn (2030) Satellite Connectivity market. OneWeb is one of the two only global LEO networks and has experienced strong momentum over recent months, with service expected to be fully deployed in 2023.

The transaction would represent a logical next step in the successful partnership between Eutelsat and OneWeb, started with Eutelsat’s equity investment in OneWeb in April 2021 and deepened with the Global Distribution Agreement announced in March 2022. Eutelsat currently holds 23% of OneWeb’s share capital, alongside a consortium of high-profile public and private investors.

Under the terms of the transaction being discussed, Eutelsat and OneWeb shareholders would each hold 50% of the combined group’s shares.

The transaction would be structured as a contribution by OneWeb’s shareholders of their stake in OneWeb to Eutelsat in exchange for newly issued Eutelsat shares. Any combination would be subject to, among other conditions, approval by the requisite majority of Eutelsat shareholders and receipt of all relevant antitrust and regulatory (including foreign investment) approvals.

There can be no assurance that these discussions will result in any agreement. Eutelsat will inform the market as soon as soon as there are any new developments.

UPDATE 26th July 2022 @ 7:19am

Eutelsat and key OneWeb shareholders have this morning confirmed that they’ve signed a Memorandum of Understanding (MoU) with a view to combining Eutelsat and OneWeb in an all-share transaction. Under the deal, Eutelsat shareholders and OneWeb shareholders would each hold 50% of the Eutelsat shares. The transaction values OneWeb at $3.4bn, implying a value of €12 per Eutelsat share (including the dividend, before synergies).

As expected, Eutelsat will continue to be listed on Euronext Paris and apply for admission for a standard listing on the London Stock Exchange. Trading under its existing name, OneWeb will also continue to operate the LEO business, with OneWeb’s headquarters remaining in the UK.

The UK Government will retail its ‘golden share’ and the deal has been structured to reaffirm Eutelsat’s commitment to supporting the UK “while further strengthening our presence as an international business.” Eutelsat would own 100% of OneWeb (excluding the ‘Special Share’ of the UK Government).

The transaction, subject to clearance by the usual meetings and regulatory authorities, is expected to close by the end of the first half of 2023.

Dominique D’Hinnin, Eutelsat’s Chairman, said:

“I am delighted to announce this new and significant step in the collaboration between Eutelsat and OneWeb. Bringing together our two businesses will deliver a global first, combining LEO constellations and GEO assets to seize the significant growth opportunity in Connectivity, and deliver to our customers solutions to their needs across an even wider range of applications. This combination will accelerate the commercialisation of OneWeb’s fleet, while enhancing the attractiveness of Eutelsat’s growth profile.

In addition, the combination carries significant value creation potential, anchored on a balanced mix of revenue, cost and capex synergies. The strong support of strategic shareholders of both parties is a testament to the huge opportunity that this combination offers and the value that will be created for all its stakeholders. This is truly a game changer for our industry.”

Neil Masterson, OneWeb’s CEO, said:

“Just 20 months ago, OneWeb resumed its mission to connect the unconnected and remove the barriers to connectivity that hold back many of the world’s underserved economies and communities. Since then, we have turned this vision into reality and become the second largest low Earth orbit satellite operator in the world.

Today’s announcement is another bold step in OneWeb’s remarkable journey. It is testament to the resilience, execution and innovation of our teams, the strong demand we have seen since launching our commercial services, and the close collaboration we have forged with our partners to provide high-speed, low latency connectivity for governments, businesses, and communities.

This combination accelerates our mission to deliver connectivity that will change lives at scale and create a fast growing, well-funded company which will continue to create significant value for our shareholders.”

The move gives OneWeb the support it needs to continue future development, while ensuring that the UK’s strategic priorities are maintained. One other upside is that, even if the government did suddenly decide to walk away from OneWeb tomorrow, it would still have made some money on its gamble. But at present, OneWeb and its future navigation technologies remain too important for the UK gov to offload.