Eutelsat’s CEO Rodolphe Belmer has explained in some detail why it made its move on OneWeb. Last week it announced it would place $550 million into OneWeb in return for a 24 per cent shareholding. The 24 per cent stake puts Eutelsat at an equal level as the two existing investors. Eutelsat will have 3 seats on the OneWeb board.
The logic, explained Belmer, is that given OneWeb exited its Chapter 11 bankruptcy last year in a process that wiped out some $3.5 billion of debt, OneWeb has emerged as a strong business with almost 200 satellites in orbit, a very reliable launch contractor, and a solid production line building around 15 satellites each week.
Belmer didn’t quite say the deal was a bargain but given that Eutelsat can make use of its ‘windfall’ $507 million ‘incentive bonus’ from the FCC for giving up its C-band frequencies over the US, and thus does not have to borrow to fund the OneWeb purchase, the investment might be seen as a no-brainer.
The two existing partners, the UK government and Bharti Global, each invested $500 million for their 24 percent stakes. Eutelsat’s commitment of $550 million is therefore a 10 per cent premium to the two original participants.
The Eutelsat stake gives a valuation to OneWeb of some $2.3 billion which is impressive given that the constellation only exited Chapter 11 last summer. It is worth stressing that now OneWeb has attracted some $5 billion of investment overall, although $3.5 billion was wiped clean during the bankruptcy.
Moreover, Belmer sees considerable complementarity between Eutelsat and OneWeb. Top of that list is the low latency that OneWeb offers to its business and governmental customers (OneWeb is not targeting consumers). OneWeb is also close to launch (this coming winter in some regions) and thus without the more usual long lead-times in the satellite industry. Eutelsat says it is in discussions with more than 100 prospective customers about the possibilities OneWeb offers.
But – and it has to be stressed – there are anxieties. Giles Thorne, and equity analyst at investment bank Jefferies, describes the move as Eutelsat’s “Moonshot”. The bank applauds the ambition and looks forward optimistically. However, Jefferies also cautioned investors that there was no evidence that the various Achilles heels of HTS-LEO have been resolved.
It was much the same view at Exane/BNPP, where Sami Kassab reminded investors that OneWeb was created in 2012 and has thus taken 10 years -and a bankruptcy – to get to where it is today. Meanwhile, SpaceX has achieved actual retail business in barely 5 years. Kassab believes OneWeb to be the “least attractive” mega-constellation from a technological and economic point-of-view.
Robert Berg, an analyst at Berenberg Bank, summed up the thoughts of many saying that he worries about the future capital needs of OneWeb. But he also equated the $550 million investment saying that it wasn’t that much more to buy, launch and insure a conventional VHTS craft, but the upside returns on OneWeb could be exciting.
Nevertheless, Eutelsat talks of OneWeb’s revenues hitting $1 billion a year within 3-5 years of the constellation getting to work. There’s also the idea that OneWeb will provide the missing link in the UK’s ambitions for its own global positioning system.