SES and Intelsat reportedly in merger talks

Satellite operators SES and Intelsat are in merger talks, according to a report in the FT.

According to the paper, the pair are in talks in a move to ensure they are not left behind by industry consolidation in an environment where new entrants such as Elon Musk’s Starlink.

Citing unnamed sources, the FT said that the two companies are in active discussions about the structure of a potential deal.

The report follows SES’s main rival Eutelsat’s announcement two weeks ago that it planned to acquire UK-based low-Earth orbit constellation player OneWeb in a deal that values OneWeb at €4.3 billion.

Eutelsat said that the combined entity would be the first multi-orbit satellite operator offering integrated GEO and LEO solutions and would be positioned to address a fast-growing satellite connectivity market that is expected to be worth about US$$16 billion by 2030.

OneWeb expects to have its LEO-based service fully deployed in 2023.

That merger announcement met with scepticism among investors given the scale of the necessary financial commitments to create a new LEO satellite constellation, causing Eutelsat’s shares to fall sharply.

SES’s share, by contrast, rose on news of the potential combination with Intelsat

SES and Intelsat are both traditional geostationary Earth orbit satellite providers with legacy video businesses but have decided to invest in medium Earth orbit (MEO) constellations to deliver an expected upsurge in demand for satellite-enabled data communications rather than go down the more capital-intensive LEO route.

SES’s O3b MEO subsidiary plans to launch five MEO satellites between now and the end of 2024, providing global coverage for fixed data, mobility and government applications, with three of those launches scheduled for the last quarter of this year.

SES recently also acquired DRS GES, a provider of government solutiosn that SES believes will play well with its MEO capabilities.

A report by Credit Suisse last month predicted that a merger between SES and Eutelsat could lift their combined equity value by q as much as 30%.

Credit Suisse believes that a combination could generate synergies in the order of US$2.6 billion.

Both companies are now based in Luxembourg, potentially simplifying a merger involving SES, in which the Luxembourg government has a significant equity stake.

News of the potential tie up comes as SES unveiled what it characterised as solid first half results.

The operator posted revenues of €899 million, up 2.8%, and adjusted EBITDA of €545 million, flat year-on-year.

SES’s video business turned in revenues of €500 million, down 7%. Excluding wholesale, where revenues were down in the US by a significant amount, video revenues were down 4.8% year-on-year, with some uplift from Germany’s HD+ and sports and event broadcasting.

At 30 June 2022, SES delivers 8,028 total TV channels to 366 million TV homes around the world

SES Networks underlying revenue of €387 million represented a growth of 2.1% year-on-year compared with H1 2021 with higher mobile revenues offset by lower government revenues following the US government’s withdrawal from military involvement in Afghanistan.

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