Eutelsat’s chief executive Eva Berneke was on Tuesday battling to convince shareholders in the French satellite group of the case for combining with UK start-up OneWeb, admitting that the merger marked a “big change” for a company prized for its dividends.
Shares in Paris-listed Eutelsat have tumbled more than 30 per cent since the group revealed on Monday that it was in talks over an all-share deal with OneWeb, a satellite group backed by SoftBank and rescued from bankruptcy in 2020 by the UK government and Indian telecoms billionaire Sunil Bharti Mittal .
Announcing the deal on Tuesday, Eutelsat said it would suspend its dividend for two years to plow into OneWeb’s low Earth orbit satellite network. Billed as a merger of equals, the companies cast the tie-up as a step towards creating a European champion better positioned to compete with billionaire space entrepreneurs Elon Musk and Jeff Bezos.
Eutelsat and OneWeb said in a joint statement that the proposed transaction would create a stronger player to offer space connectivity for everything from cruise ships to rural areas by combining Eutelsat’s fleet of 36 geostationary satellites with OneWeb’s constellation of 648 low Earth orbit (LEO) satellites.
Berneke sought to placate Eutelsat’s alarmed investors, acknowledging that the deal was a big change to the company’s “equity story” that had been based on being a stable cash-generative business and reliable dividend payer.
“A lot of Eutelsat shareholders have focused on yield and dividend and now we are creating a growth-oriented company, which will need future investment in technology,” she said. “This is a big change.”
Shares in Eutelsat were down 16 per cent in Paris on Tuesday after tumbling 18 per cent on Monday. Before this week the stock had dropped just 3 per cent this year, compared with a 13 per cent decline in France’s Cac 40 index.
Markus Kaussen, an analyst at Swiss asset manager BWM, which is a top-15 shareholder in Eutelsat, told the Financial Times on Monday that “operationally I don’t see the reason for the merger and financially it’s just a bet on an expensive start -up.”
The major shareholders of both companies — the UK government and Bharti Global for OneWeb and the French government for Eutelsat — have declared their support and will have representation on a new 15-member board.
OneWeb shareholders will receive 230mn newly issued Eutelsat shares, representing 50 per cent of the French group’s enlarged share capital.
“We will be the only integrated GEO and LEO player in the world,” said Eutelsat’s chair Dominique D’Hinnin. This will allow the new group to capitalise on “an impressive growth opportunity in our sector and outperform our competitors”.
The deal values the privately held OneWeb, whose bailout by UK left the government with an 18 per cent stake, at $3.4bn, implying a value of €12 per Eutelsat share, including the French group’s dividend for this year that will be paid as planned .
One UK government official conceded that the £100mn of profit from the merger had been wiped out by the steep drop in Eutelsat’s share price, but pointed out that this was only ever a “paper profit”.
Business secretary Kwasi Kwarteng is “happy with the deal”, according to the official. “People said we would lose £500mn, that it was a wacky investment, that it was a basket case,” he added. “This deal creates a single operation with financial clout in a competitive, consolidating market, which is a positive.”
The special share assigned to the British government allows ministers to veto sales for national security applications, keep the headquarters of OneWeb in London, veto relationships that could compromise Five Eyes security relations and makes the UK a “first preference” for both manufacturing and launch capability . “We see this deal as a no-brainer,” the official said.
Berneke will lead the combined company, while D’Hinnin will remain chair; Mittal, OneWeb’s chair, will be vice-chair.
The deal underlines how European satellite companies, backed by governments that see space communications as a strategic industry, are racing to keep up with the likes of Musk and Bezos who have been pouring money into disruptive satellite technology.
Musk’s company SpaceX has funded the growth of his Starlink network of LEO satellites, which can deliver internet connections with fewer delays since they are closer to earth. That has posed a stiff challenge to OneWeb, which had been a pioneer in LEO, but whose fleet now needs a big upgrade.
Given the scale of investment required, Berneke told investors that she could not be sure when the dividend will be restored or at what level.
While Eutelsat does not have plans to raise equity to meet OneWeb’s investment needs, Berneke said she could not rule it out as “it is a little bit hard to promise that I know everything about the future and what technology will do or not do”.
Headquarters for Eutelsat and OneWeb will be maintained in Paris and London respectively and an listing for the merged group is also planned in the UK capital.
The companies said they expected the deal to close in six to nine months.