French satellite company Eutelsat Communications and its British rival OneWeb, helmed by Indian billionaire Sunil Mittal, have signed a Memorandum of Understanding with the objective of creating a leading global player in connectivity through the combination of both companies in an all-share transaction, the companies announced Tuesday.

Eutelsat will combine its 36-strong fleet of GEO satellites with OneWeb’s constellation of 648 low earth orbit (LEO) satellites, of which 428 are currently in orbit.

The transaction would be structured as an exchange of OneWeb shares by its shareholders (other than Eutelsat) with new shares issued by Eutelsat, such that, at closing, Eutelsat would own 100 percent of OneWeb (excluding the ‘Special Share’ of the UK Government), an official statement stated.

The transaction is expected to close by the end of the first half of 2023.

OneWeb shareholders would receive 230 million newly issued Eutelsat shares representing 50 percent of the enlarged share capital.

The potential transaction builds on the deepening collaboration between Eutelsat and OneWeb, begun with the equity stake acquired by Eutelsat in OneWeb in April 2021, the global distribution agreement between Eutelsat and OneWeb announced in March 2022, and the new exclusive commercial partnership addressing mainly the European and global cruise markets.

A Reuters report specifically stated the two companies will keep their respective headquarters in Britain and France, while the merged group, listed in France, will also apply for a London listing.

Eutelsat will suspend its dividend for two years to invest in the development of OneWeb’s satellite network.

Commenting on the combination, Eutelsat’s Chairman  Dominique D’Hinnin in a statement said, “I am delighted to announce this new and significant step in the collaboration between Eutelsat and OneWeb. Bringing together our two businesses will deliver a global first, combining LEO constellations and GEO assets to seize the significant growth opportunity in Connectivity, and deliver to our customers solutions to their needs across an even wider range of applications. This combination will accelerate the commercialisation of OneWeb’s fleet, while enhancing the attractiveness of Eutelsat’s growth profile.”

Sunil Bharti Mittal, OneWeb’s Executive Chairman, added: “Having played a pioneering role in providing connectivity in the emerging world, I am excited about the possibilities of connecting the unconnected. The combination of Eutelsat and OneWeb represents a significant development in that direction as well as a unique GEO/LEO combination.

“The positive early results of our service together with our strong pipeline represent a very exciting opportunity in the fast-growing satellite connectivity segment, especially for customers requiring a high speed, low latency experience. Bharti, as the lead shareholder of OneWeb, along with other key shareholders, is looking forward to playing a meaningful role in providing expanded connectivity through the combination of OneWeb and Eutelsat.”

Eva Berneke, Eutelsat’s Chief Executive Officer, said, “Our initial investment in OneWeb was underpinned by our strong belief that the future growth in Connectivity will be driven by both GEO and LEO capacity. This belief has intensified as our relationship with OneWeb has deepened, first by raising our stake in the company, and then with the global distribution agreement signed a few months ago. We are now moving to the next level, with a full combination that will ensure the potential of the GEO/LEO integration is fully realized, supported by compelling financial, strategic, and industrial logic.

The transaction, the media statement claimed, provides a platform for both entities to create value while transforming their respective growth profiles and cash generation potential. Combined entity would have revenues of circa €1.2bn and EBITDA of circa €0.7bn in FY22-23.

Dominique D’Hinnin would be proposed as Chairman of the combined entity and Sunil Bharti Mittal as Co-Chairman (Vice-Président). Eva Berneke would continue as CEO of the combined entity.

The Memorandum of Understanding provides for customary exclusivity commitments by Eutelsat and key Eutelsat and OneWeb shareholders.

The transaction will be subject to clearance from relevant regulatory authorities.

Meanwhile, OneWeb has already obtained permission from the Indian government to provide high-speed broadband via satellite service. A similar project of Elon Musk-backed Starlink had run into trouble with the authorities in India as it was trying to pre-sell its services before a formal launch and without obtaining any local licences.