Eutelsat in talks to combine with satellite rival OneWeb

Eutelsat Communications SA is in talks about a combination with UK satellite rival OneWeb Ltd., a step toward creating a European champion to rival the likes of Elon Musk’s SpaceX.

Eutelsat and OneWeb shareholders will each hold 50% of the combined group, with OneWeb shareholders receiving newly issued Eutelsat shares, the French company said in a statement Monday. The deal, first reported by Bloomberg on Friday, could be valued at more than $3 billion, people familiar with the matter had said.

Speaking in front of European ministers in February, French President Emmanuel Macron said it was a “matter of sovereignty” to create a satellite offering that could rival Musk. Five months later, Macron could be getting his wish.

However, the deal faces a raft of potential hurdles. Eutelsat is heavily backed by the French state, while its fourth-largest shareholder is the China Investment Corp. sovereign wealth fund. The UK, also a major stakeholder in OneWeb, has been heavily scrutinizing deals involving foreign investors.

Within its statement on Monday, Eutelsat said that any deal would need all the relevant antitrust approvals, including foreign investment, and that there was no certainty a deal would be reached. Eutelsat’s shares fell 8% following the announcement on Monday, the biggest drop in about eight months.

If the deal is successful, it could be the latest merger in what has become a race by corporations and governments to offer rapid connectivity via loworbit satellites.

Europe has been attempting to build its own satellite system that would make it less dependent on Chinese and US technology. Macron has been urging Europe to enhance its space strategy since at least 2019, citing tensions with the US, and new threats from Russia and China.

At present, Europe is far behind. Starlink has a fleet of about 2,500 spacecraft launched in the last few years by Musk’s Space Exploration Technologies Corp. Amazon.com Inc.’s Project Kuiper is also planning a similar venture.

“If Eutelsat were to combine with OneWeb, we believe it should demand a bigger proportion of the merged entity than 50%. Eutelsat already has a hedge against technology change via its commercial arrangement with OneWeb and its 23% stake. The company generates significant cash flow, whereas OneWeb has little to no revenue and its main assets are probably its orbital slots and spectrum access.”

Eutelsat, which originally agreed to pay $550 million in cash for a 24% stake in OneWeb in April 2020, operates satellites for clients like government and TV broadcasters from higher geostationary orbit. This doesn’t offer the same quick connection speeds as those that focus on low-orbit satellites.

However, the UK has emerged as home to a surprise rival to SpaceX. Founded in 2012, OneWeb collapsed in 2020 when lead investors pulled their money at the height of the coronavirus pandemic.

The UK government put forward about $500 million as part of a $1 billion partnership with Bharti Global, in a deal pushed by Dominic Cummings, a former adviser to Prime Minster Boris Johnson, under the guise of protecting a potentially vital tech asset following Brexit. The UK has since ceded ground.In November, Viasat Inc. agreed to purchase Inmarsat Group Holdings Ltd for $4 billion.