Advanced Television

Satellite operators talk merger, and lose billions

August 8, 2022

The world’s three leading satellite operators are talking about mergers. Eutelsat has announced its plan to merge with OneWeb, while SES is reported to be in talks to merge with Intelsat. But the market has delivered a devastating comment on both sets of reports.

For example, Eutelsat suffered a massive fall in its share price immediately after announcing the merger on July 25 of 18 percent, and another 18.2 percent on July 26th. In other words, its share price crashed from €10.65 ahead of the announcement to just €7.01 on July 26th. It has recovered somewhat, to €8.51 by the close of business on August 5th.

SES has also suffered. While not in any way confirming any discussions with Intelsat, its shareholders seemed to have taken immediate decisions. Its share price fell like a stone by 10 per cent on August 4th from €7.81 to €7.10 and fell further on August 5th to just €6.95. It recovered a little to €7.27 by the close of business on August 5th. These prices are a way off from the past year’s high point of €9.02.

Both companies have seen their market capitalisation suffer by significant amounts. Eutelsat’s tumbled more than €1 billion, to just €1.71 billion. CEO Eva Berneke joined Eutelsat on January 2nd, 2022, when Eutelsat’s share price was at €10.88. Since then, it has lost around one-third of its value.

The Eutelsat deal values OneWeb at $3.4 billion and implies a value for Eutelsat of €12 per share. Eutelsat is sticking with a dividend payment this trading year of €0.93 per share (or a scrip option) but its dividend payments for at least the next two years are suspended (covering trading years 2022-2023 and 2023-2024).

SES is somewhat different. While any merger with Intelsat is at the moment just speculation, the shareholder exit has been influenced by delays on the launch and entry into service of its O3b division’s mPOWER satellites by a quarter-year or two.

CEO Steve Collar told analysts that the satellites have entered final testing. “[mPower satellites are] a strategic project that is going to drive growth for SES for the next decade. It is game-changing in its capability. We’re having to be a little more patient than we would like, but the good news is that we’re fully locked in for three launches this year and have a solid in-service date for Q2 [2023], and no change in our [revenue] trajectory,” he said.

Investment bank Exane/BNPP, in its note on Collar’s comments, said that the first two satellites have entered the thermal vacuum test phase in Boeing’s factory. “This phase comes at the end of the manufacturing process and attests to its progress.”

The bank also said it estimated savings of $200 million for SES in costs and Capex should a merger happen. There are also untapped Intelsat tax savings available. “We continue to believe that mPower offers differentiated technology and the most attractive bandwidth economics in the industry. Our positive rating reflects our anticipation of its commercial success and resulting return to sustainable growth for SES.”

Shareholders can only hope that the bank is right on SES, and that there’s a satisfactory outcome on the Eutelsat/OneWeb merger. Eutelsat shareholders are being forced to give up their dividends for – at least – the next two trading years. They must be anxious they’ll not be losing their shirts as well.

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