(Bloomberg) -- SES SA is in talks to combine with rival Intelsat SA to create a satellite giant that can better compete with billionaire Elon Musk.
Luxembourg-based SES said in a statement Wednesday it’s “engaged in discussions regarding a possible combination with Intelsat,” confirming an earlier Bloomberg News report. SES said its board remains “fully committed” to acting in the best interest of SES shareholders, and there’s no certainty a transaction will materialize.
The companies are in advanced negotiations and aim to reach an agreement as soon as the next few weeks, people with knowledge of the matter said. A transaction could value the combined business at more than $10 billion including debt, according to the people, who asked not to be identified because the information is private.
A representative for Intelsat declined to comment.
SES depositary receipts jumped as much as 10% in Paris trading Wednesday, the biggest intraday gain since August 2021. They were up 3.7% at the close, giving SES a market value of €2.6 billion ($2.9 billion). Intelsat’s secured bonds due 2030 were indicated 5.6 cents on the dollar higher at 89.6 cents, the biggest gain since they were issued last year, data compiled by Bloomberg show.
A combination would help SES bulk up at a time when it’s facing fresh competition. Plans by Musk and fellow tycoon Jeff Bezos to launch thousands of spacecraft into lower orbits and blanket the earth in fast broadband have pushed the traditional satellite industry into mergers.
“The market is highly fragmented in a sector where scale is critical,” Credit Suisse Group AG analysts including Pilar Vico wrote in a research note Wednesday, noting there are still about 55 operators globally. “The synergies could be considerable.”
SES and Intelsat hold a combined 40% share of the fixed satellite services market, according to Goldman Sachs Group Inc. Any merger would help SES better position itself against an evolving backrop, with new players and new technologies set to bring disruption, Goldman analysts including Andrew Lee wrote in a research report.
A deal would need the blessing of the Luxembourg government, which is SES’s largest shareholder.
California-based Viasat Inc. agreed in 2021 to buy Britain’s Inmarsat Group for about $4 billion in cash and shares, while France’s Eutelsat Communications SA is acquiring OneWeb Ltd. in a $3.4 billion all-stock deal.
Intelsat emerged from bankruptcy in February last year, cutting its $16 billion debt pile in half. The company was founded in 1964 as an intergovernmental consortium and broadcast the first moon walk, before being privatized in 2001. It was acquired by private equity firms BC Partners and Silver Lake in 2008.
The cost of insuring SES’s debt against default for five years soared Wednesday and was set for its biggest increase on record, according to CMAQ pricing.
Bonds of SES may experience a selloff, “given the experience of Eutelsat’s proposed tie-up with OneWeb that saw its bonds crater as much as 10 points,” Bloomberg Intelligence credit analyst Aidan Cheslin wrote in a note Wednesday.
Read More: Intelsat Overcomes Numerous Objections to Secure Bankruptcy Plan
SES, which has its headquarters in a Luxembourg castle, beams video for broadcasters including Sky TV. It also provides broadband for clients who are remote from traditional internet service, such as cruise ships and planes.
The company is right to pursue a combination as “cost savings could be significant given the broad operational overlaps and secular decline in the core video business,” John Davies, an analyst at Bloomberg Intelligence, wrote in a note Wednesday. “Yet these same overlaps imply a need for close regulatory scrutiny, perhaps triggering remedies large enough to reduce the attractiveness of any transaction.”
Steve Collar, the chief executive officer of SES, has previously called space “essentially a fixed-cost industry” that can see enormous financial benefits from consolidation. The company worked with an adviser to explore a takeover of Inmarsat in 2021, people familiar with the matter have said.
--With assistance from Dana El Baltaji, Luca Casiraghi, Bruce Douglas, Sam Unsted, Alexandra Muller and Kit Rees.
(Updates with bond reaction, analyst comments from fifth paragraph.)
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