Fall in Eutelsat share price casts doubt on OneWeb merger

Eva Berneke Eutelsat CEO.jpg

Eutelsat shares fell to their lowest in two years this morning after the company confirmed it was talking to fellow shareholders in OneWeb about a merger.

Its shares were trading at €8.69 this morning, valuing the company at €2.40 billion – a substantial fall on the previous closing price of €10.58.

But in November last year the share price was €13.25 and four years ago it was €22.83.

The fall came after Paris-based Eutelsat confirmed “that it has engaged in discussions with its co-shareholders in OneWeb regarding a potential all-share combination”.

This would “create a global leader in connectivity”, with complementary activities in geostationary (GEO) and low Earth orbit (LEO) activities.

The possible deal highlights in a sense the plight of some of the vintage geostationary satellite operators. Another, London-based Inmarsat, is planning to merge with US group Viasat. OneWeb itself was planning to buy Intelsat, the grand-daddy of them all, several years ago – before it went into chapter 11 bankruptcy protection in 2020, but withdrew, citing Intelsat’s indebtedness.

OneWeb and Eutelsat announced a close relationship earlier this year, which they described as a distribution partnership agreement, but it looked at the time like a merger of marketing operations, though not of the companies.

Eva Berneke (pictured), CEO of Eutelsat, said in March: “This deal showcases the scope for synergies between our two companies and opens up the potential of low orbit to complement our geostationary assets in the fast-growing markets of aero and maritime mobility, fixed data and government services, building on the development of 5G and cloud technologies that will generate low latency requirements.”

Now, it appears that the two are taking the next logical step following that earlier deal.

OneWeb has not so far commented on the situation. Eutelsat is already the second biggest shareholder in OneWeb, with 23%, way behind Bharti Global, which owns 38.6%. The UK government, which rescued OneWeb from bankruptcy two years ago in a pact with Bharti, has seen its stake diluted to 19.3%.

Reports say that Eutelsat and OneWeb are close to agreeing a deal, but as their proposal is an all-share deal, that would be impacted by a sharp fall in the share price.

The other major problem that might impede a merger is that one of Eutelsat’s larger shareholders, with 20%, is China Investment Corporation, owned by the People’s Republic of China. OneWeb’s satellites are made in Florida, and OneWeb has been active in securing satellite communications business from major operators such as AT&T and from the US military. Both are unlikely to be delighted with a prospective merger that has a substantial Chinese shareholding.

In addition to that, OneWeb’s launch programme stalled after Russia’s invasion of Ukraine in February, leaving it well short of its target of 648 satellites in orbit.

OneWeb’s launch contractor, the French company Arianespace, had a cosy relationship with Roscosmos, the Russian space agency, to use its Soyuz rockets and two of its launch sites – one in Russia and one in Baikonur, a Russian enclave in Kazakhstan. However that relationship ended days after Russian troops marched into Ukraine, leaving 36 satellites sitting on top of the latest Soyuz. OneWeb has only 428 of its 648 satellites in service.

OneWeb has since come to a deal with SpaceX, Elon Musk’s company, to launch the remaining satellites – though that will involve it in more expense, as the previous launch contract with Arianespace had been paid in full by the version of OneWeb that went into chapter 11 bankruptcy protection early 2020. And OneWeb’s Florida factory has to make replacements for the 36 seized by the Russians in Baikonur.