OneWeb, a British satellite operator, intends to collaborate with European competitor Eutelsat. The two companies signed a Memorandum of Understanding with the objective of creating a leading global player in Connectivity through the combination of both companies in an all-share transaction.
The proposed deal can create a robust European rival to Elon Musk’s SpaceX and Amazon.com’s (AMZN.O) Project Kuiper by providing space broadband connectivity to everyone from the military to people living in remote areas.
After falling more than 17% Monday, following the confirmation of media reports that Eutelsat was in merger talks with OneWeb, the company’s shares fell for a second day on Tuesday, dropping close to 10%.
A Eutelsat press release on Tuesday addressed the rapid share loss by prefacing that OneWeb and Eutelsat shareholders will each own 50% of the combined company. The Eutelsat representative added that, as part of the all-stock merger, it would issue 230 million new shares and exchange them for every last share of OneWeb. Thanks to this deal, OneWeb is now worth $3.4 billion.
Over the following ten years, revenue is expected to increase at low double-digit rates. It is estimated that by the 2022-2023 fiscal year, the merged companies will generate roughly 1.2 billion euros in revenue and earn approximately 0.7 billion euros in core EBITDA.
Sunil Bharti Mittal, investor of OneWeb, will take on the role of co-chairman by joining forces with Dominique D’Hinnin and Eva Berneke of Eutelsat, who will be serving as chairman and CEO of the combined company, respectively.
D’Hinnin, claims the agreement will enable both companies to “seize the significant growth of opportunity in connectivity.” she added pridefully, “This combination will accelerate the commercialization of OneWeb’s fleet while enhancing the attractiveness of Eutelsat’s growth profile.”
To bring broadband to remote areas with little access to the internet, OneWeb plans to launch 648 low-earth orbit satellites. Currently, it has 428 satellites in orbit, which will soon be joined by Eutelsat’s 36-satellite fleet in geostationary orbit.
The transaction also requires shareholder approval from Eutelsat in addition to antitrust clearance. With shares of Eutelsat trading at their lowest level since late 2020 on Tuesday, investors didn’t seem convinced by the acquisition.
Despite the support of the largest shareholders, some investors are wary of the deal because they believe it will affect Eutelsat negatively by having it not be as liquid as it once was, making it a riskier bet for the future.
With the aid of the British government, OneWeb emerged from bankruptcy in 2020 after squandering billions of dollars in venture capital. The government contributed $500 million to the firm’s bailout plan. Eutelsat acquired a stake in OneWeb last year to avoid future objections as part of a post-bailout financing round.
The U.K. government owns a “special share” that gives it voting rights on issues about national security, such as the network security standards of OneWeb and the location of its headquarters. This share is not included in the transaction. Analysts noted that the British government maintained veto power in some cases.
London is reducing its control over the former space venture at a politically precarious time. Following the resignation of Prime Minister Boris Johnson, members of the ruling Conservative Party will elect the new leader of the United Kingdom.
According to the terms of the agreement, OneWeb will keep using its current name and will maintain its U.K. headquarters. Eutelsat, currently listed in Paris, intends to pursue a second listing on the London Stock Exchange.