The rumours that some sort of consolidation could take place between SES and Eutelsat refuse to die.
At the November 5th results conference, analyst Patrick Wellington from Morgan Stanley almost seemed to appeal to SES CEO Steve Collar to come clean and explain the position.
Collar politely declined the invitation to deliver any information – and expressed no clue as to whether there was any substance in the rumours. However, he did happily talk about the growing prospects for “disciplined investment” and M&A activity which, he said, could be in place with the receipt of the FCC’s payment of the second tranche of cash from the restructuring of C-band frequencies over the US.
SES is due to receive almost $1 billion in its 1st tranche of cash from the FCC (Q1/2022) and another $2.99 billion during Q1/2024. The first chunk of FCC money will be used to strengthen the company’s balance sheet.
However, SES specifically says “the second payment of C-band relocation incentive ($2.99 billion pre-tax linked to success milestone in Q4 2023) to be used for a mix between return to shareholders, strong balance sheet and any disciplined value-accretive investment” [emphasis added].
In practical terms a merger between SES and Eutelsat could create significant cash savings, but would be tough to square with the pair’s governmental shareholders, and the national pride that Luxembourg and France have in their separate businesses.
The financial community summed up the results briefing, saying – in the words of Exane’s Sami Kassab – that “industry consolidation can wait”.
Giles Thorne from Jefferies had a similar sentiment, saying that instead of “industry consolidation” then hear CEO Steve Collar’s “strategic flexibility” and adding: “It’s not clear whether this is a Video or a Networks consolidation, or both. Furthermore, it’s not clear whether the window for consolidation has now closed, negating the need for Networks separation, or whether the window is still open, but it can now be realised under the status quo. Management wouldn’t be drawn on the specifics of a merger with Eutelsat despite once again talking of the need for industry consolidation. For us, the decision is not one for the management teams to make – it’ll be a question of industrial policy in Luxembourg (and Paris).
SES share price rose 9.18 per cent on the day.