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OneWeb, an affiliate of the Japanese group, to buy Intelsat in bid for wider internet access

By Andy Pasztor and Mayumi Negishi 

Japanese telecom company SoftBank Group Corp. is orchestrating a deal between U.S. satellite startup OneWeb Ltd. and debt-laden satellite operator Intelsat SA in an attempt to deliver faster and cheaper internet connections world-wide.

OneWeb, which is 40%-owned by SoftBank, Tuesday said it would buy Intelsat, combining two very different types of satellite fleets that would offer low-cost, versatile connectivity spanning the globe. As part of the deal, SoftBank will inject $1.7 billion into the combined company, in which it will hold a 40% stake.

The deal, which is subject to approval by Intelsat bondholders, would lower Intelsat's roughly $14.5 billion debt by about $3.6 billion, while allowing OneWeb to further expand its ambitious satellite-production and deployment plans in the next decade.

The combination comes amid escalating efforts by other tech giants to find the recipe for ubiquitous internet links in the sky. Facebook Inc. is developing a high-altitude, solar-powered drone, called Aquila, to provide web access to remote locations. Alphabet Inc.'s Google is working on high-altitude balloons, dubbed Project Loon, and specialized satellites. Even Boeing Co, which in the past resisted the trend toward small satellites, is pursuing plans to possibly launch its own downsized fleet.

SoftBank, which runs a major cellphone provider in Japan and controls Sprint Corp. in the U.S., is chasing new deals as it seeks to control technologies it sees as essential in an age of increased connectivity, automation and artificial intelligence.

Last year, it closed a $32 billion deal to buy U.K. chip designer ARM Holdings PLC, a key supplier of chip architecture for cellphones. ARM aims to double the number of its engineers in five years to accelerate research in areas such as chip security and robotics.

SoftBank Chief Executive Masayoshi Son is preparing to open a $100 billion fund, with the backing of Saudi Arabia's sovereign-wealth fund and other partners, in an attempt to become the world's biggest investor in technology over the next decade.

The proposed deal between OneWeb and Intelsat would be a major departure from the traditional way satellite-service providers have operated. It would feature a hybrid fleet of large Intelsat craft operating at high altitudes and eventually perhaps more than 2,500 smaller satellites circling much closer to the Earth.

The move is the latest marrying a startup space company with a more established player at a time many incumbent satellite-services companies are struggling with a capacity glut that is weighing on earnings. Luxembourg's SES SA last year agreed to buy all of O3b Networks Ltd. OneWeb's founder, Greg Wyler, also founded and serves as executive chairman of O3b.

For Intelsat, which has been struggling under a heavy debt load and sluggish growth, the proposed deal amounts to a lifeline to reinvigorate its offerings by teaming up with a more-nimble partner.

Intelsat has weathered a string of acquisitions and leveraged buyouts stretching back more than a decade. Several private-equity firms acquired the company in 2004 for $3.1 billion. Four years later, a different set of private-equity partners closed a deal for the company relying on only $5 billion of equity and the assumption of more than $11 billion of debt. Recently, Intelsat's management has been seeking strategies to manage its debt and boost sales.

Stephen Spengler, Intelsat's chief executive, described the move as "an acceleration of the plans of both companies." He said Softbank's agreement to inject $1.7 billion into the new entity wasn't intended to underwrite the proposed fleet expansion.

But by paring debt and capitalizing on some of OneWeb's assets, Mr. Spengler envisions offering customers more options as data rates and user patterns shift around the world.

"We need to bring multiple solutions to the table" to persuade customers the combined fleets offer long-term stability under fast-changing conditions, he said during a call with analysts hours after the announcement. With annual revenue projected to stay at roughly $2.1 billion for 2017, Mr. Spengler said Intelsat also would benefit from foregoing some capital expenditures, But company officials said it was too early to release specifics.

Building, testing and launching large commercial-communications satellites that hover over a specific spot on the Earth can cost hundreds of millions of dollars and take several years from the time designs are started.

By contrast, OneWeb projects initially assembling its satellites over a matter of days -- and eventually in less than 24 hours -- at a cost below $1 million apiece.

Pending approvals by bondholders and regulators, Mr. Spengler is slated to be chief executive and Mr. Wyler executive chairman of the combined company.

The deal's goal is to unlock new applications and markets, including faster and less-expensive internet links for mobile devices and homes and business in developing regions. By building on OneWeb's technical advances and Intelsat's experience serving mature and emerging areas, the transaction provides "an opportunity to utilize" diverse assets and "create something that is larger than the individual companies," Mr. Wyler said in an interview.

He also said OneWeb's existing partners, including Airbus SE, unanimously back the deal. The announcement comes barely days before a joint venture between OneWeb and Airbus is scheduled to break ground to construct a cutting-edge automated factory in Florida intended to assemble satellites faster than any other facility in the world. The venture has projected building some 600 modular satellites and starting initial service by 2019.

The two satellite fleets won't be able to directly hand off signals to each other. But the combination would mean tailoring capacity from each system to most effectively serve different types of markets.

Industry officials consider large, highflying systems better able to satisfy extensive demand in urban areas, partly because individual satellites have unmatched power and capacity. Constellations of smaller spacecraft such as the OneWeb plans to put up, however, cost less and typically have shorter lag times between transmissions from space and reception of signals on the ground. They often are preferred for serving dispersed demand over less populated areas.

In a speech in London last week, Mr. Wyler told reporters that OneWeb was leaning toward building and deploying a second-generation fleet, potentially comprising another 2,000 additional, higher-capacity satellites by 2027, partly reflecting SoftBank's vision of expanded capacity.

--Robert Wall contributed to this article.

Write to Andy Pasztor at andy.pasztor@wsj.com and Mayumi Negishi at mayumi.negishi@wsj.com

(END) Dow Jones Newswires

March 01, 2017 02:49 ET (07:49 GMT)

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