Less than a day after announcing it was quashing rumours by revealing it was in discussion with OneWeb to talk about a potential merger, Eutelsat has, in the wake of announcing its yearly results, confirmed a memorandum of understanding (MoU) to join forces with the global low Earth orbit (LEO) satellite provider.
Eutelsat Communications first announced in April 2021 that it was to make a strategic investment in the UK government and Bharti Global joint venture-owned LEO satellite provider as it looked for growth beyond traditional broadcast and broadband applications, becoming a shareholder partner.
In September 2021, Eutelsat confirmed the closing of its $550m equity investment in OneWeb and, subject to completion of the subsequently announced investments in OneWeb by Bharti and Hanwha – the latter a USD$300m equity investment by the South Korean Fortune 500 global technology and manufacturing company – Eutelsat held a 17.6% stake. It currently holds 23% of OneWeb’s share capital and deepened its relationship through a global distribution agreement announced in March 2022.
The MoU has the objective of creating a leading global player in connectivity through the combination of both companies in an all-share transaction. The deal will see Eutelsat own 100% of OneWeb, excluding the “special share” of the UK government, and will combine its 36-strong fleet of geostationary Earth orbit (GEO) satellites with OneWeb’s constellation of 648 LEO satellites, of which 428 are currently in orbit.
They aim to address what they call the considerable connectivity market opportunity, which is fuelled by the growing needs of customers in both the B2B and B2C segments for consistent, reliable connectivity. The companies believe these market segments are forecast to grow by three and five times respectively over the next decade, to reach a combined value of circa $16bn by 2030, with growth being served by both GEO HTS and LEO capacity.
In addition, the firms said the combination of the network density, compelling economics and high throughput of GEO with the low latency and ubiquity of LEO, creates the optimal solution to address an even wider range of customer needs, thereby expanding the addressable market. Claiming that their operations are highly complementary, Eutelsat and OneWeb said a clear roadmap has been designed to develop over time a complementary GEO/LEO service, including a common platform, hybrid terminals and a fully mutualised network.
“Bringing together our two businesses will deliver a global first, combining LEO constellations and GEO assets to seize the significant growth opportunity in connectivity, and deliver to our customers solutions to their needs across an even wider range of applications,” said Eutelsat chairman Dominique D’Hinnin.
Dominique D’Hinnin, Eutelsat
“This combination will accelerate the commercialisation of OneWeb’s fleet, while enhancing the attractiveness of Eutelsat’s growth profile. In addition, the combination carries significant value creation potential, anchored on a balanced mix of revenue, cost and capex [capital expenditure] synergies. The strong support of strategic shareholders of both parties is a testament to the huge opportunity that this combination offers and the value that will be created for all its stakeholders. This is truly a game-changer for our industry.”
OneWeb executive chairman Sunil Bharti Mittal added: “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. Our customers are actively seeking a combined GEO/LEO offering, leading us towards this important step.”
The firms calculate that the average annual revenue synergies are estimated at circa €150m after four years, with hybrid GEO/LEO offerings providing a premium service to customers as well as improving the fill rate. Synergies from joining organisational forces are expected to generate annual run-rate savings of over €80m pre-tax after five years, mostly through cost duplication avoidance.
Capex optimisation is expected to generate average savings estimated at circa €80m per annum, from year one. This would be achieved by leveraging the hybrid GEO/LEO satellite infrastructure and through the improved purchasing power of the combined entity.
The combined entity would have revenues of circa €1.2bn and EBITDA of circa €700m in the 2022-23 financial year. For its 2021-22 financial year ended 30 June 2022, Eutelsat reported total revenues of €1.15bn, down by 6.7% on a reported basis and down 3.9% like-for-like.
Yearly revenues in the company’s five operating verticals stood at €1.15bn, falling 3.8% on a like-for-like basis excluding a positive currency effect of circa two points as well as a negative perimeter effect of circa 2.5 points from the disposal of Euro Broadband Infrastructure. Fourth quarter revenues stood at €293m, down by 3.8% on a reported basis and by 3.3% like-for-like. Revenues of the five operating verticals stood at €295m, down 3.1% year-on-year and up 1.5% quarter-on-quarter on a like-for-like basis.
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