Eutelsat shares fall for second day on ‘game-changing’ deal with OneWeb

By Sudip Kar-Gupta and Silvia Aloisi

PARIS (Reuters) -French satellite company Eutelsat will suspend its dividend for two years to invest in the development of British rival OneWeb’s satellite network as part of an all-share deal to merge the two groups, the companies said on Tuesday.

The proposed deal creates a stronger European competitor to Elon Musk-owned SpaceX’s Starlink and Amazon.com’s Project Kuiper, offering space broadband connectivity to anyone from the military to those living in isolated areas.

Eutelsat shares fell for a second day on Tuesday, dropping 15% after plunging more than 17% on Monday, when the group confirmed media reports that it was in merger talks with OneWeb.

Under the transaction, which values OneWeb at $3.4 billion, OneWeb shareholders will get new shares issued by Eutelsat in exchange for their shares, in what is effectively a takeover by the French company of the British one.

However, reflecting the political sensitivities, the deal is branded as 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 entity, and the two companies will keep their respective headquarters in Britain and France, while the merged group, listed in France, will also apply for a London listing.

Eutelsat boss Eva Berneke, who will become chief executive of the combined group, said earlier on Tuesday the stock’s fall the previous day was a result of a lack of communication “which created a lot of uncertainty on the market”.

The deal, she said, was a game-changer in the satellite industry and would deliver savings of 1.5 billion euros ($1.53 billion).

She also played down the risk of governance tussles, saying that the top shareholders of both companies – Britain’s government and Indian billionaire investor Sunil Bharti Mittal for OneWeb and the French government for Eutelsat – backed the deal. They will have equal representation on a new 15 member board.

RISKIER BET?

The $3.4 billion valuation of OneWeb, which was bailed out by Britain in 2020, implies a value of 12 euros per Eutelsat share, including this year’s dividend that will be paid as planned. Eutelsat traded at 7.3 euros by 1430 GMT on Tuesday.

The tie-up would combine Eutelsat’s 36 geostationary satellites with OneWeb’s 648 low-Earth orbit satellites.

In addition to antitrust clearance, the deal needs approval by Eutelsat shareholders.

While the biggest have said they back it, some investors have balked at the prospect of a deal they say turns Eutelsat, known for its high cash flow and dividends, into a riskier bet on future growth.

Analysts also pointed to looming balancing acts between the different shareholders, with the British government retaining a veto power on some decisions.

“The combination is likely to raise touchy national sovereignty concerns between the UK and French governments…Where will satellites be built? Who will launch them? Will France want OneWeb to be more French? Let the horse trading begin,” said Chris Quilty of Quilty Analytics.

A French ministry source said France will monitor the planned deal to ensure that its interests are safeguarded.

The combined entity would have revenue of about 1.2 billion euros and core EBITDA earnings of around 700 million euros by the 2022/2023 financial year, the companies said.

The earnings forecast was below an analyst consensus estimate for Eutelsat alone of around 850 million euros, while an annual expected capital expenditure of 725 million to 875 million euros is well above the 400 million euros level Eutelsat had earmarked so far, Quilty said.

Revenue was forecast to grow at a low double-digit rates over the next decade.

Eutelsat’s Dominique D’Hinnin would be chairman of the combined entity, with Bharti Mittal as vice chairman.

($1 = 0.9779 euros)

(Writing by Silvia Aloisi; Editing by Barbara Lewis)