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OneWeb and Eutelsat + Blackouts + Marvel
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Eutelsat, the French satellite group, has confirmed this morning that is in talks with UK-based OneWeb about an all-share merger. This is a fascinating story that raises all sorts of questions about how the UK wants to approach a fast-growing industry with national significance as well as the usefulness of state shareholdings and whether it is more productive to work alone or as part of a bigger team in a sector with deep-pocketed rivals.
Firstly, the facts behind this potential deal. The UK government owns around 18 per cent of OneWeb after backing a deal to rescue it from bankruptcy in 2020 when Softbank decided not to provide more funding. Other shareholders in OneWeb include Indian billionaire Sunil Bharti Mittal, who owns 30 per cent and is also chairman after working with the UK on that 2020 deal. Eutelsat already owns 23 per cent of OneWeb after investing last year while Softbank still has a stake too. Eutelsat’s shareholders include the French government at 20 per cent and the Chinese sovereign wealth fund, China Investment Corporation, which owns 6 per cent according to Refinitiv.
This means the UK, French and Chinese governments would be investors alongside each other in the new company. Eutelsat said in its statement that the deal could be structured as a 50-50 merger, with shareholders in the French company and OneWeb each holding half of the enlarged business. However, given that Eutelsat already has a 23 per cent stake in OneWeb this could give it around 61.5 per cent of the merged entity. The UK government’s stake would drop to around 9 per cent, but Reuters is reporting that it would retain special rights, such as a veto over sales to clients deemed too risky due to national security concerns (aka China) and a veto over moving OneWeb’s head office away from the UK (it’s in London right now). The FT reports that Mittal will be chairman of the business and the UK and French governments will have a seat on the board. The Times also said that Eutelsat-OneWeb could look for a secondary listing of its shares in London alongside Eutelsat’s existing listing in France. That story is here. In other words, there are plenty of benefits for the UK in this deal even if the government’s stake is diluted.
In financial terms the benefits of the UK’s investment are still to be determined. The UK government put around £400 million into OneWeb in 2020, an initiative pushed by Dominic Cummings, then Boris Johnson’s adviser. Shares in Eutelsat have fallen 18 per cent on news of the deal this morning, valuing the business at around €2 billion meaning that a stake of 9 per cent in the enlarged company would be worth around £306 million.
Shares in Eutelsat have fallen amid concerns about the cost of the deal, investors being diluted and regulatory scrutiny. Analysts at Credit Suisse said in a note to clients: "From an anti-trust point of view, this deal is likely to be scrutinised heavily and will also likely need political consensus from both the UK and EU at a time when the UK is choosing a new prime minister.”
So what is the value of OneWeb and this deal to the UK? Cummings pushed it as a way for the UK to have a direct stake in the development of space technology. This deal would give it a smaller stake in a bigger business but also align it with Europe, where Eutelsat is the leading satellite group. Rishi Sunak and Liz Truss may not see either of those two things as a positive. In fact, without Cummings or Johnson it is not clear how anyone in government sees OneWeb.
Eutelsat and OneWeb are launching satellites that can offer broadband and communications connections around the world. However, this is a competitive market, with well-financed rivals in Elon Musk’s Starlink and Amazon’s Project Kuiper. At present Starlink is ahead. Musk’s company has about 2,500 satellites in orbit while OneWeb said in March it had 428. Both Eutelsat and OneWeb need more investment to modernise their technology and launch more satellites. However, Eutelsat claims the market for satellite connectivity is estimated to be worth $16 billion a year by 2030.
As well as the terms of the deal, OneWeb and Eutelsat shareholders have other issues to resolve if this merger is to go-ahead. For instance, Eutelsat helps to broadcast television channels in Russia while OneWeb was forced to abandon satellite launches in the country earlier this year after the invasion of Ukraine and has teamed up with Starlink instead.
However the talks play out from here, the fact that Eutelsat is interested in a 50-50 merger with OneWeb suggests the UK government’s investment in rescuing the company in 2020 was reasonable - this is a technology and a sector that is growing in importance. If the UK government wants to go it alone from here and opposes the Eutelsat deal then OneWeb will still need to find investment from somewhere - potentially $2 billion to $3 billion in the short-term - to advance its work. That would mean the UK is diluted by investment coming in from elsewhere or puts the money in itself, which feels unrealistic in the current political environment. Instead, this deal with Eutelsat offers a 50-50 merger, a board seat and veto powers. It is a route that ensures the UK keeps a front-row seat in this industry.
You should also read this…
There is a shortage of new football kits ahead of the start of the season, with fewer than half of Premier League teams able to offer their home and away kits due to supply chain issues (BBC)
East London came close to a blackout last week, forcing the UK to pay 5,000 per cent more than normal to import electricity from Belgium. A bonkers and concerning story. More of this to come in the winter? (Bloomberg)
An interesting interview with tech investor Peter Thiel on how the development of smartphones and other devices is hiding a lack of human progress overall. “We tell ourselves that we’re advancing because grandma gets an iPhone with a smooth surface but meanwhile she gets to eat cat food because food prices have gone up.” (Unherd)
Thiel’s Valar Ventures has led a $40 million fundraising for investing app Shares, which launched in the UK earlier this year (Bloomberg)
Finally, here is Off to Lunch’s round-up of what was interesting in the Sunday papers, including a look at GPs, Sir Nigel Rudd v Willie Walsh and the bid battle for OneWeb (Off to Lunch)
And for those who missed it on Friday, here is our piece on the rise of English sparkling wine. You need to be a paying member to read this and the press review in full (Off to Lunch)
And finally…
After being pushed to the brink by the Covid-19 crisis and the growth of streaming services, cinemas have been able to enjoy a string of box office hits in 2022, including Top Gun: Maverick, The Batman, Jurassic World Dominion and Minions: The Rise of Gru. There was more good news for cinemas over the weekend as Marvel Studios laid out its release schedule for the next few years, culminating in Avengers: The Kang Dynasty and Avengers: Secret Wars in 2025. The last two Avengers films - Infinity War and Endgame - are the fifth and second-highest-grossing films of all-time. Given that a sequel to the highest-grossing film of all time - Avatar - is being released in December, cinemas have a genuine reason to be optimistic. This is also good news for those who feel that some of the recent Marvel films have become overly-complex and lost their edge (Doctor Strange in the Multiverse of Madness being a case in point). The announcement over the weekend means there is now an end-point for the current story…
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Graham