Intelsat’s stock soars on report of OneWeb merger

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Editor’s note: Intelsat and OneWeb announced early Feb. 28 a “conditional combination agreement” that entails a $1.7 billion investment by SoftBank. 

WASHINGTON — Intelsat’s stock rose 25 percent Monday following a report from Britain’s Sky News that the global satellite fleet operator is in advanced talks over a merger with the well-capitalized startup OneWeb.

SpaceNews has not independently confirmed the merger talks, which Sky News reports are being led by OneWeb’s biggest investor, Tokyo-based Softbank. Intelsat and OneWeb did not immediately respond to SpaceNews’ request for comment.

Intelsat is one of OneWeb’s original investors, taking a minor stake during a $500 million investment round in June 2015 that also included Airbus, Coca-Cola, Hughes and Virgin Galactic.

In December, Softbank invested $1 billion dollars in OneWeb, funding the bulk of an oversubscribed $1.2 billion financing round. 

Cititing unnamed sources, Sky News reports that Softbank would “commit to paying down some of Intelsat’s huge debt-pile as part of the transaction.”

The deal is understood to be conditional on Intelsat’s bondholders accepting an offer at a slight premium to where the bonds were trading on Monday.

OneWeb was valued at $2.5bn in its most recent fundraising, while Intelsat, shares in which have a market value of roughly $550m, carries about $15bn of debt. —“SoftBank reaches for stars with $18bn OneWeb, Intelsat merger,” Sky News, Feb. 27 

Intelsat’s stock ended the day at $5.87 a share — the stock’s highest close since November 2015. The debt-laden company is due to report its fourth quarter and full-year earnings Tuesday morning.

In a research note posted late Monday afternoon, Wells Fargo Senior Analyst Andrew Spinal noted that Intelsat and OneWeb management have not commented on the merger report and said he expected “more clarity” when Intelsat does its earnings call Tuesday morning.

“It is unclear to us how this deal would be structured financially given OneWeb is a pre-launch startup and Intelsat is a heavily levered incumbent provider, but as we have pointed out in the past there is solid industrial logic to the combination of the two orbits,” Spinola wrote.

Intelsat operates in the Ku-band in GEO (geostationary orbit) and OneWeb will operate in the Ku-band in LEO (low-earth orbit). Each orbit has strengths and weakness (LEO is low latency and truly global but less concentrated capacity; GEO is best for large capacity, regional services).

Aviation is a good example of how the two constellations would work together (note…Intelsat/OneWeb/Gogo are already partnering on a hybrid LEO/GEO solution): a user request from an airplane would be serviced by the LEO constellation given it is much closer to the plane (i.e. lower latency) and the network could then respond to the request from LEO if it is just a web page or route the request to the GEO satellites if it is a large file like a video.

The combination of the OneWeb LEO constellation with Intelsat’s fleet of GEO satellites would be a stronger business than the sum of the individual businesses, in our opinion. — from Wells Fargo’s Feb. 27 research note

The combination of both companies would bring together Intelsat’s geostationary satellite services with OneWeb’s proposed low-Earth orbit services after the startup begins launching spacecraft in 2018 and into 2019.

Intelsat has previously praised offering combined GEO-LEO services using OneWeb and its fleet of nearly 60 GEO satellites, and signed a deal with in-flight connectivity provider Gogo to leverage capacity from both satellite systems once OneWeb is operational.