Bank: SES/Intelsat merger worthwhile?
June 28, 2022
Equity analysts at Credit Suisse have asked a key question in a fresh report and pondering whether a merger between the world’s two biggest satellites operators, SES and Intelsat, both based in Luxembourg, would pan out.
Their answer is a simple: you bet it would.
The bank’s report (European Satellite: Scaling Up) suggests that there would be a 30 per cent uplift to the overall equity value of the rivals and make complete sense.
Analyst Ben Lyons sums up the benefits saying that the theoretical proposal could make industrial sense as both the operators have global reach with more potential synergies, and both are pursuing Medium-Earth Orbit (MEO) strategies.
“On our scenario analysis, a potential combination could generate synergies with a net present value of $2.6 billion and, if SES captures half of those synergies, that would imply a roughly more than 30 per cent uplift to the equity value,” says Lyons.
Lyons says the bank believes consolidation for SES is also possible with Eutelsat but the OneWeb portion of Eutelsat’s investment make up could make consolidation more complex, but not impossible, for Eutelsat.
Lyons adds that the barrier to a transaction would be the Luxembourg government’s ownership stake in SES, which gives the government 33 per cent of the voting rights (a similar position exists with France’s ‘golden shares’ in Eutelsat).
“We believe this could be overlooked as Intelsat is based in Luxembourg and could give the government voting rights in a larger satellite company. A tailwind for both companies is the roughly $6.5 billion in C-band payments due to be received in 2024,” adds Lyons.
Credit Suisse also takes a longer view of the consolidation opportunities in the satellite industry, and suggests that the current Viasat and Inmarsat combination – which recently gained Viasat shareholder approval – is another potential game-changer and that change could include EchoStar. Charlie Ergen’s Echostar owns Hughes Network Services which operates in the same workspace as Viasat and Inmarsat.
“We still expect geostationary assets to remain competitive in most areas of satellite connectivity due to the economics of LEO being significantly more challenging (more than $5 billion vs less than $2 billion in GEO for global coverage) but we think there will be growing competition from new LEO entrants,” Lyons adds.