Intelsat SA and SES SA have ended talks on a merger that would have created a satellite giant to help fend off growing competition as the industry consolidates.
(Bloomberg) — Intelsat SA and SES SA have ended talks on a merger that would have created a satellite giant to help fend off growing competition as the industry consolidates.
Discussions on a potential combination have ceased, SES said in a statement Thursday, confirming an earlier Bloomberg News report. It didn’t provide further details. A transaction could have valued the combined business at more than $10 billion including debt, Bloomberg News reported in March.
The satellite industry is capital intensive. Building the spacecraft and sending them up requires huge outlays that can pay off with high-margin service revenue once the network is in place. That’s why a number of established players are pursuing combinations, and also why billionaires Elon Musk and Jeff Bezos are risking the expense to launch thousands of the spacecraft.
Still, a tie up with Intelsat may not have been the been the best strategic move for SES, which still has room to grow independently and may have been left with slumping revenues and less cash after a deal, Barclays Plc analyst Nick Dempsey said in a note.
Read More: SES Gains as End of Talks With Intelsat a Positive: Street Wrap
SES’s depositary receipts jumped 5.2% to €5.11 at 10:20 a.m. in Paris on Thursday. They’d fallen 20% this year through Wednesday.
Intelsat wasn’t able to reach an agreement with SES and its major stakeholders on the future direction of the business, people with knowledge of the matter said earlier. The Luxembourg government is SES’s biggest shareholder and was seen as key to securing a deal.
“Intelsat engages in strategic conversations with potential partners on a regular basis, and we do not publicly comment on the content or outcome of those discussions,” Intelsat said in an emailed statement.
Read More: SES Bonds Rise Most on Record as M&A Talks With Intelsat End
Deals are likely to continue in the industry. A decline in old satellite businesses, like broadcast TV, combined with fresh investments in low-Earth-orbit satellites that blanket the ground below with high-speed Internet access, are providing additional incentives for consolidation.
“There are certainly challenges to face in direct-to-home satellite video over time, and in data applications which overlap with LEO constellations – but we are not too sure that the added scale Intelsat brings would make a notable difference here,” Dempsey said.
What Bloomberg Intelligence Says:
The end of talks between SES and Intelsat over a deal was never a remote possibility, given the barriers to closing a deal: financial, regulatory and governance. Any one of them could have been enough to stymie an agreement, but the prize of consolidation is large enough that talking was the right option. SES remains relatively well-placed among satellite peers with lower leverage and a growing non-geostationary business.
— John Davies, BI TMT analyst
In November 2021 California-based Viasat Inc. announced it would acquire Britain’s Inmarsat Group Holdings Ltd., and in July 2022 France’s Eutelsat SA agreed to combine with UK-backed low-earth orbit venture OneWeb Ltd.
Steve Collar, SES’s chief executive officer, has previously called space “essentially a fixed-cost industry” that can see enormous financial benefits from consolidation. The company announced earlier this month that Collar would be stepping down at the end of June. Ruy Pinto, the chief technology officer, will be his interim replacement.
SES had disclosed talks about a possible combination with Intelsat in March. The two companies control about 40% of the fixed satellite services market, according to a previous estimate from Goldman Sachs Group Inc.
Intelsat emerged from bankruptcy last year, cutting its $16 billion debt in half. The company was founded in 1964 as an intergovernmental consortium and broadcast the first moon walk, before being privatized in 2001. Private equity firms BC Partners and Silver Lake bought it in 2008.
–With assistance from Liana Baker and Henry Ren.
(Updates with additional context and analyst commentary throughout)
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