O3b buyout: “Why the rush?”
May 31, 2016
Last week, satellite operator raised €900 million in order to complete the purchase of mini-satellite constellation O3b. At least one investment bank is asking why SES has moved on O3b now, and so soon after the significant profits warning from Eutelsat.
“With the Eutelsat profit warning just 2 weeks ago pointing to dramatic change in the sector, and O3B still largely unproven, this haste seems unwarranted. Commercial synergies look demanding and SES seems under-prepared to explain them,” stated Laurie Davison, equity analyst at Deutsche Bank.
The bank’s May 31st note to investors said it was concerned that the deal is motivated as much by a slowdown in the sector’s core Video and Data contract renewals, “as much as the merits in O3b”.
Indeed, Deutsche Bank admits that Eutelsat “still looks more exposed” but that the bank “sees no upside in SES”. The bank’s note continues in a negative fashion saying: “O3B is largely unproven. Its commercial activities only commenced in Sept 2014 and its initial plan of 20 satellites will only complete from 2H2019. [Eutelsat’s] KA-SAT has set a worrying precedent for over-optimism in new technical and commercial ventures. SES could have waited; it only moved to majority control/50.5% a month ago (29 Apr.”
The bank’s formal advice to investors is to ‘SELL’ Eutelsat but to ‘HOLD’ SES shares despite cutting its target price for SES’s shares from €21 to €19. SES holds its Capital Markets Day on June 21st when it is expected that more detail will emerge.