Paris-based Eutelsat, a commercial satellite provider, and London-based OneWeb, a global communications network that delivers high-speed, low latency internet access, announced on Monday, July, 25, that they have signed a Memorandum of Understanding with a view to combine Eutelsat and OneWeb in an all-share transaction.
This deal will create a global multi-orbit satellite broadband operator, combining Eutelsat’s 36-strong fleet of GEO satellites with OneWeb’s constellation of 648 low Earth orbit (LEO) satellites. Currently, OneWeb’s 428 LEO satellites are in orbit.
Eutelsat and OneWeb’s shareholders would each hold 50 per cent of Eutelsat shares. The deal is expected to close by the end of the first half of 2023.
Transaction overview
OneWeb shares would be exchanged for newly issued Eutelsat shares as part of the transaction’s structure. This does not include the “Special Share” in OneWeb that the UK Government has kept, together with the existing rights attached to it. Shareholders of OneWeb would get 230 million newly issued Eutelsat shares, representing 50 per cent of the company’s increased share capital.
The number of new Eutelsat shares to be received by existing OneWeb shareholders would not be affected by the payment of the €0.93 per share dividend with a scrip option for FY21-22 to be proposed at the upcoming AGM of Eutelsat.
The combined company will have a balanced ownership structure that includes private investors, anchor public shareholders, and a sizeable free float. Dominique D’Hinnin would be proposed as Chairman of the combined entity and Sunil Bharti Mittal as co-Chairman (Vice-Président). Eva Berneke would continue as CEO of the combined entity.
Sunil Bharti Mittal adds, “Having played a pioneering role in providing connectivity in the emerging world, I am excited about the possibilities of connecting the unconnected. The combination of Eutelsat and OneWeb represents a significant development in that direction as well as a unique GEO/LEO combination. The positive early results of our service together with our strong pipeline represent a very exciting opportunity in the fast-growing satellite connectivity segment, especially for customers requiring a high speed, low latency experience.”
Indian telecom company Bharti Global is OneWeb’s largest shareholder.
Aim of the merger
Eutelsat and OneWeb will address the connectivity market opportunity, which is accelerated by the growing needs of consumers in both the B2B and B2C segments. By 2030, both market categories are expected to have grown by three and five times, respectively, and will have a combined market value of around $16B. Both GEO HTS and LEO capacity will be able to accommodate this expansion.
The companies say that combining the network density, economics, and high throughput of GEO with the low latency and widespread availability of LEO produces the optimal solution to address an even broader range of customer needs, hence extending the market that can be served.
The combination of Eutelsat with OneWeb is expected to provide value, such as:
- After four years, it is expected that average annual revenue synergies will be over €150M, with hybrid GEO/LEO products offering clients a premium service and raising the fill rate.
- After five years, it is anticipated that organisational synergies will produce annual run-rate savings of approximately €80M pre-tax, mostly through the elimination of cost duplication.
- From the first year, capex optimisation is predicted to produce average savings of about €80M annually. By utilising the hybrid GEO/LEO satellite infrastructure and the increased purchasing power of the combined organisation, this would be accomplished.
- These sources of additional value generation show a balanced distribution of income, expenses, and capital expenditures. When combined, they have a net present value of more than €1.5B after taxes (net of implementation costs).
Eva Berneke, Eutelsat’s CEO, says, “We are now moving to the next level, with a full combination that will ensure the potential of the GEO/LEO integration is fully realised, supported by compelling financial, strategic, and industrial logic.”
Berneke adds, “This combination will create a powerful global player with the financial strength and technical expertise to accelerate both OneWeb’s commercial deployment and Eutelsat’s pivot to connectivity. The combined entity will be geared towards profitable growth, with strong medium-term cash flow generation and a rapid deleveraging driven by strong forecast EBITDA growth.”
Profitable growth
The merger allows both parties to grow their own profiles and cash flow-producing capacities. In FY22–23, the combined company would have around €1.2B in revenues and €0.7B in EBITDA. Over the following 10 years, revenues are anticipated to increase at a low double-digit CAGR.
Over the fiscal years FY23-24 to FY29-30, the combined entity’s capex is projected to range on average from €725M to €875M annually.
The cash flow generation of Eutelsat will offer OneWeb insight and funding to expand its fleet with no risk. Eutelsat will temporarily suspend its dividend, and cash flow will be focused on the deployment of the Gen-2 constellation while maintaining a strong balance sheet.
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