The logo of European satellite operator Eutelsat is seen at the company’s headquarters in Issy-les-Moulineaux near Paris, France, October 11, 2021. REUTERS/Gonzalo Fuentes
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PARIS, July 26 (Reuters) – French satellite company Eutelsat (ETL.PA) will suspend its dividend for two years in order to get involved in the development of British competitor OneWeb’s satellite network in an all-share deal to merge the two groups invest The company announced on Tuesday.
The proposed deal creates a stronger European competitor for Elon Musk-owned SpaceX’s Starlink and Amazon.com’s (AMZN.O) Project Kuiper.
Eutelsat shares fell for a second day on Tuesday, falling nearly 10% after falling more than 17% on Monday, when the group confirmed to media reports it was in merger talks with OneWeb.
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As part of the transaction, which values OneWeb at US$3.4 billion, OneWeb shareholders will receive new shares to be issued by Eutelsat in exchange for their shares, effectively representing an acquisition of the British company by the French company.
However, due to political sensitivities, the deal is branded a merger of equals. It is expected to close in the next six to nine months, pending antitrust approval.
Shareholders of both companies will own 50% of the combined company and the two companies will retain their respective headquarters in the UK and France, while the combined group, which is listed in France, will also apply for a listing in London.
Eutelsat CEO Eva Berneke, who will become CEO of the combined group, said Monday’s share price decline was the result of a lack of communication “which has created a lot of uncertainty in the market”.
She said the deal is a game changer in the satellite industry and would result in savings of 1.5 billion euros ($1.53 billion).
She also downplayed the risk of governance disputes, saying that the main shareholders of both companies – the UK government and Indian billionaire Sunil Bharti Mittal for OneWeb and the French government for Eutelsat – supported the deal. They will be represented equally on a new board of 15 members.
RISKY BET?
The $3.4 billion valuation of OneWeb, bailed out by the UK in 2020, implies a value of €12 per Eutelsat share, including this year’s dividend, which will be paid as planned. Eutelsat was trading at 7.7 euros by 1000 GMT on Tuesday.
The link would combine Eutelsat’s 36 geostationary satellites with OneWeb’s 648 low-Earth satellites.
In addition to antitrust approval, the transaction is subject to Eutelsat shareholder approval.
While the biggest have said they support it, some investors have dismissed the prospect of a deal they say will make Eutelsat, known for its strong cash flow and dividends, a riskier bet on future growth.
Analysts also pointed to a looming balancing act between different shareholders, with the UK government retaining veto power over some decisions.
“The combination is likely to raise thorny national sovereignty concerns between the UK and French governments… Where are satellites being built? Who will start it? Will France want OneWeb to be more French? Let the horse trading begin,” said Chris Quilty of Quilty Analytics.
The combined company would generate sales of around EUR 1.2 billion and a core EBITDA of around EUR 0.7 billion by the 2022/2023 financial year. Revenue has been forecast to grow at low double-digit rates over the next decade.
Eutelsat’s Dominique D’Hinnin would be chairman of the merged entity, with Bharti Mittal as vice chairman.
($1 = 0.9779 euros)
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Writing from Silvia Aloisi; Edited by Barbara Lewis
Our standards: The Thomson Reuters Trust Principles.
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