Eutelsat In Talks To Acquire OneWeb

French satellite company Eutelsat has confirmed it is in talks for a possible all-share merger with the UK’s OneWeb, as the companies look to compete with satellite broadband players such as SpaceX’s Starlink or Amazon.com’s Project Kuiper.

The firm’s statement confirmed reports over the weekend that Eutelsat was planning to acquire OneWeb, in which Eutelsat already owns a 24 percent share.

OneWeb was valued at $3.4 billion (£2.8bn) in its most recent funding round.

“Following recent market rumours, Eutelsat Communications confirms that it has engaged in discussions with its co-shareholders in OneWeb regarding a potential all-share combination to create a global leader in connectivity,” Eutelsat said in a statement.

Antitrust scrutiny

OneWeb declined to comment.

Eutelsat’s shares closed 16.55 percent down at 8.57 euros on Monday following the statement as its investors reacted to the uncertainty created by the possible buy, which would give them shares in a new entity.

The talks are currently aimed at creating a merger of equals that would give Eutelsat and OneWeb shareholders 50 percent of the new, combined group.

But any deal would require the relevant antitrust approvals and there are no assurances the talks will result in any final agreement, Eutelsat stated.

Politically sensitive

Eutelsat, which paid $550m in cash for its stake in OneWeb in April 2021, operates satellites for clients including government and TV broadcasters from a higher geostationary orbit, as distinct from the lower orbit used by firms such as Starlink that’s necessary for broadband connection speeds.

Any deal would be highly politically sensitive, as Eutelsat’s biggest shareholder is the French state, which owns 20 percent of the firm through state-owned investment bank Bpifrance, while the UK government owns a significant portion of OneWeb, following a $1bn bailout with India’s Bharti Global in 2020 that rescued OneWeb from financial collapse.

In addition, Eutelsat’s fourth-largest backer is China’s sovereign fund China Investment Corp., which could raise foreign investment concerns.

‘Minority stake’

A merger would be leave the UK government with a minority stake in the combined group, although it would retain special rights including a veto over sales to clients over national security concerns, a veto over a change in the location of OneWeb’s headquarters, a veto over business relations that might compromise the “Five Eyes” intelligence alliance comprising Australia, Canada, New Zealand, the UK and the US, and a say on supply chain and launch decisions, Reuters reported, citing an unnamed source.

Credit Suisse said in a research note that the deal was likely to be “scrutinised heavily” and would “also likely need political consensus from both the UK and EU at a time when the UK is choosing a new Prime Minister”.

IBM UK business intelligence analyst John Davies said in a note that Eutelsat should demand a greater than 50 percent share in the merged group, as it already owns 23 percent of OneWeb and generates significant cash flow, “whereas OneWeb has little to no revenue and its main assets are probably its orbital slots and spectrum access”.