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Satnews Daily
March 1st, 2017

Done deal... maybe — Intelsat and OneWeb to combine synergies... and technologies... as well as new SoftBank investment


Intelsat (NYSE: I) and OneWeb have entered into a conditional, combination agreement pursuant to which Intelsat and OneWeb will merge in a share-for-share transaction.

Intelsat and SoftBank Group Corp. (“SoftBank”) also entered into a definitive share purchase agreement pursuant to which SoftBank will invest $1.7 billion in newly issued common and preferred shares of the combined company. Both the merger and the SoftBank investment are subject to, among other conditions, successful completion of debt exchange offers to certain existing Intelsat bondholders as well as receipt of certain regulatory approvals—the bondholders hold the key to this deal.

The complementary strengths of Intelsat and OneWeb, combined with the investment by SoftBank, are intended to create a financially stronger company with the flexibility to aggressively pursue new growth opportunities resulting from the explosion in demand for broadband connectivity for people and devices everywhere.  

The debt exchange offers together with the proceeds of the SoftBank investment are intended to reduce Intelsat’s debt by approximately $3.6 billion, assuming the minimum level of participation in the debt exchange offers is achieved. Either party can terminate the agreement and SoftBank can terminate its investment if the debt exchange offers have not been successfully completed within 90 days of the date of the agreement.

It is expected that, upon the admission of third party limited partners to the SoftBank Vision Fund, and subject to receipt of all applicable regulatory approvals, in accordance with SoftBank Vision Fund agreements, SoftBank’s investment position related to the combined company will be offered to the SoftBank Vision Fund for the purpose of transferring SoftBank’s shares to the SoftBank Vision Fund.

If consummated, the combination of Intelsat and OneWeb is expected to deliver strategic and financial benefits including:

  • Improved Intelsat Capital Structure and Enhanced Financial Flexibility. Provided minimum levels of participation in the Intelsat Exchange Offers are attained, the transaction would provide Intelsat with a clearer path to further and accelerated de-levering through improved revenue, lower interest expense, and operating and capital expenditure synergies. The transactions announced today contemplate reducing Intelsat’s debt to adjusted EBITDA1 ratio from 8.8x today to 6.6x on a pro forma basis. 
  • Acceleration of Each Company’s Strategic Growth Plans and Development of Large, New Markets and Applications. If the transaction is completed, OneWeb’s low earth orbit (“LEO”) satellites, combined with Intelsat’s geostationary orbit (“GEO”) satellites would accelerate the combined company’s strategic growth plans to offer a truly global and affordable networking solution. Intelsat’s fully integrated Ku-band infrastructure, coupled with the combined company’s managed services, has the potential to support the development of an entirely new and extensive set of mass-market applications, including for consumer broadband, connected cars, cellular backhaul, the Internet of Things, and machine-to-machine communications. 
  • Advanced Services for New and Existing Customers. The combination, if consummated, would bring advanced solutions to current applications, including enterprise networks, telecommunications infrastructure for wireless operators and broadband services for the aeronautical and maritime sectors. Additionally, the combined company would be able to introduce advanced services for media industry customers seeking to complement traditional content broadcasting with over-the-top delivery digital media to fixed and mobile audiences. Government customers would have access to advanced fixed and mobile services in support of civilian applications, such as digital inclusion, as well as assured communications for first response and emergency services and secured military requirements.

Artistic rendition of the OneWeb constellation.

In December 2016, SoftBank announced its commitment to invest $1 billion in OneWeb to support the technological development and the construction of the world’s first and only high volume satellite production facility to further accelerate OneWeb’s vision of delivering affordable, high-speed, low latency internet to rural and remote communities around the world. Intelsat was a founding investor in OneWeb, making a minority equity investment in 2015.

Under the terms of the transactions, SoftBank will acquire a number of common shares of the combined company, resulting in an approximate 39.9% voting stake, and an additional number of non-voting preferred shares for an aggregate cash consideration of approximately $1.7 billion. Any common shares purchased by SoftBank will be for $5.00 per share in cash. In the business combination, OneWeb shareholders will receive Intelsat common shares in exchange for their OneWeb shares. In aggregate, Intelsat will issue to SoftBank and to OneWeb shareholders common shares and preferred shares (the preferred shares for this purpose on an as converted basis) equal in the aggregate to approximately 800 million shares. Intelsat shareholders will retain the Intelsat common shares they currently hold.

The combined company will remain domiciled in Luxembourg and continue to be listed on the New York Stock Exchange. The combined company, through its subsidiaries, expects to maintain a significant presence in the United States, including at OneWeb’s new manufacturing facility in Exploration Park, Florida, and at Intelsat’s United States facilities in McLean, Virginia.

The Board of Directors of the combined company will be made up of seven directors, including three independent directors, three members selected by SoftBank and one director selected by a current Intelsat shareholder. Intelsat’s CEO, Stephen Spengler, will be the CEO of the combined company. OneWeb’s Founder and Executive Chairman, Greg Wyler, will be the Executive Chairman of the combined company’s Board of Directors.

The combination agreement has been approved by the boards of directors of Intelsat and OneWeb. Closing of the transactions is subject to approval by Intelsat and OneWeb shareholders, certain regulatory approvals and other customary closing conditions. The requisite OneWeb and Intelsat shareholders have already committed to vote in favor of the merger and related transactions through the execution of voting and support agreements. Consummation of the merger and the investment by SoftBank are cross-conditioned on one another and also subject to the completion of the Intelsat exchange offers in the 90 days following the execution of the merger and investment documentation, and other closing conditions.

The transaction is expected to close late in the third quarter of 2017.

Guggenheim Securities, LLC and Goldman, Sachs & Co. acted as financial advisors and Wachtell, Lipton, Rosen & Katz and Elvinger Hoss and Prussen provided legal counsel to Intelsat.  PJT Partners acted as lead financial advisor to OneWeb and also advised SoftBank. Barclays acted as a financial advisor to OneWeb and rendered a fairness opinion. Morrison & Foerster LLP, Arendt and Medernech, and Mourant Ozannes provided legal counsel to OneWeb and SoftBank, and Choate Hall & Stewart LLP and Milbank, Tweed, Hadley & McCloy provided legal counsel to OneWeb.

Stephen Spengler, Chief Executive Officer of Intelsat, said, “We believe that combining Intelsat with OneWeb will create an industry leader unique in its ability to provide affordable broadband anywhere in the world. As an early equity investor in OneWeb, we recognized a network that was a complement to our next-generation Intelsat EpicNG fleet and a fit with our long-term strategy. By merging OneWeb’s LEO satellite constellation and innovative technology with our global scale, terrestrial infrastructure and GEO satellite network, we will create advanced solutions that address the need for ubiquitous broadband. The transaction, including SoftBank’s investment, will significantly strengthen Intelsat’s capital structure and accelerate our ability to unlock new applications, such as connected vehicles, as well as advanced services for our existing customers in the enterprise, wireless infrastructure, mobility, media and government sectors, while also reducing execution and other risks.”

Greg Wyler, Founder and Executive Chairman of OneWeb, said, “OneWeb has made incredible technical progress over the past year, and has itself attracted significant investment from SoftBank. With SoftBank’s support we will build the world’s first truly global broadband company, accelerating our mission of bridging the digital divide by connecting the four billion people without access today. While there are numerous growth paths available to OneWeb, we are very excited at the prospect of working with Intelsat on this shared objective.”

Masayoshi Son, Chairman and CEO of SoftBank, said, “We are in the midst of a technological revolution and, provided we receive the necessary cooperation from Intelsat bondholders, we welcome the opportunity to support OneWeb as it creates the foundation for next-generation global internet services anywhere on the planet. This combination is consistent with SoftBank’s strategy of investing in disruptive, foundational technologies that are building the infrastructure for tomorrow, and this proposal offers a win-win opportunity to accelerate OneWeb’s mission while enhancing the Intelsat balance sheet.”

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oneweb.world/

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