SES to strengthen itself with $3.1B Intelsat acquisition

Satellite communications company SES has announced today that it will acquire its competitor Intelsat, saying it will pay $3.1 billion to buy 100% of equity in the latter company. This implies an enterprise value of $5 billion for Intelsat. 

SES has said it will finance the transaction from existing cash and equivalents as well as fresh debt and contingent value rights based on the company's share of potential compensation for usage rights to C-band spectrum in the US (more on that later). 

The news may not come as a shock given the two companies have been discussing a tie-up for over a year. SES confirmed talks with Intelsat were ongoing in March 2023, after a Bloomberg report said both firms were close to reaching a deal worth over $10 billion, including debt.

Today's announcement says the deal – which is subject to regulatory approvals – would create a company with a gross contract backlog of €9 billion (US$9.63 billion), revenues of €3.8 billion ($4.07 billion), and adjusted EBITDA (earnings before interest, taxes, depreciation and amortization) of €1.8 billion ($1.93 billion).

Stronger together

The deal is also expected to give rise to a stronger and more resilient multi-orbit operator with improved coverage, a larger suite of solutions and more resources to innovate. Post-merger, the new SES would have over 100 geostationary earth orbit (GEO) satellites and 26 medium-earth orbit (MEO) satellites, with eight GEO and seven MEO satellites to be added by the end of 2026. 

"The acquisition of Intelsat by SES marks a significant milestone in the satellite communications industry," said Christof Kern, the business development lead for satellite and space at consulting company TTP, via email. "Bringing together two legacy giants from Europe and the US, both companies are focused on driving efficiencies and maximizing their investments in both GEO and MEO satellites."

"However, based on the operating efficiencies gained, there's potential for deploying low earth orbit (LEO) satellites in the future to meet high-bandwidth and low-latency connectivity demands when required," he also said, adding that "with confidence in the competitiveness of these satellites, when compared to Starlink's LEO constellation, the combined entity will be able to offer wider coverage of the Earth's surface at a more affordable cost, albeit at higher latency."

Markets seem to have shrugged at the news of the planned acquisition, however. SES's share price took a further modest tumble from €5.10 (US$5.46) to €4.21 in the mid-afternoon.

SES share price (Source: Google)

Kern said, "The combined entity is poised to be the world's largest satellite company in terms of revenue, and could dominate the market, leveraging its extensive resources and expertise to shape the future of satellite communications and deliver on new use cases."

With a large number of newcomers entering the satellite segment in recent years, this latest deal is not the first sign of industry consolidation. In 2023, Eutelsat – another legacy European satellite firm – merged with LEO firm OneWeb. 

Challenges aplenty

Both companies are established satellite operators with decades-long histories. SES was founded in 1985 as Europe's first private satellite operator and says it operates over 70 satellites across both GEO and MEO. It offers communication services to companies in sectors including aviation, energy and maritime, as well as video streaming services.

SES has recently faced electrical issues with its O3b mPower MEO satellites. The problem seems to be having a financial impact, with SES noting an impairment charge of €1.9 billion ($2.03 billion) in its 2023 earnings as a result of revised assumptions about the constellation's ramp-up.

SES suffered an operating loss of €686 million ($734 million) in 2023, down from a €140 million ($150 million) profit in the previous year. Revenues for 2023, meanwhile, reached €2.03 billion ($2.17 billion), up from €1.94 billion ($2.08 billion) the previous year. 

Intelsat was, meanwhile, created in 1964 to provide international broadcast services. It says that today its fleet counts more than 58 satellites, which includes GEO, MEO and LEO. Its services span satellite communications (including to the US government), as well as mobile network backhauling, broadband and inflight connectivity.

Intelsat has, however, faced multiple challenges over its history, most recently in 2020 when it filed for bankruptcy protection. It emerged from financial restructuring in 2022 and announced a plan seeking to reduce debt from around $16 billion to roughly $7 billion. This saw the company go back to being privately held, with a fresh injection of $6.7 billion in new financing.

While its post-2021 financial results are not publicly available, Intelsat CEO David Wajsgras said in December that its 2023 revenues would reach around $2.1 billion, up ever so slightly from $2.084 billion in 2022.