OneWeb Ltd., a U.S. satellite venture backed by billionaire Masayoshi Son’s SoftBank Group Corp., is merging with debt-saddled satellite provider Intelsat SA in a share-for-share transaction.
SoftBank will invest $1.7 billion in cash and retain a 39.9 percent voting stake in the combined company, according to a statement Tuesday.
The deal is contingent on the completion of a proposed debt exchange with Intelsat’s creditors, which the Luxembourg company says would cut about $3.6 billion from its more than $15 billion debt pile. The satellite operator needs to convince holders of 85 percent of its bonds to accept a combination of newly issued notes, shares and cash that would leave them with less than face value of their existing notes, Intelsat said in a separate statement.
The exchange offer, which is worth about $7.8 billion in new debt, cash and stock, values the debt at an average of 74 cents on the dollar. The exchange offer values some bonds at prices as high as 3.75 cents above where they traded on Friday, before reports of a potential merger sent the bond prices higher.
After the deal closes, the balance sheet would be 6.6 times leveraged, Chief Executive Officer Stephen Spengler said on a conference call. Intelsat executives declined to provide a forecast for the combined company’s operating costs, capital spending plans or future debt offers.
Shares of Intelsat fell as much as 14 percent to $5.03 in New York, the most in almost five months. The stock had soared 120 percent this year through Monday.
Intelsat bonds continued to rally Tuesday morning. The most actively traded debt, $1.5 billion of 7.25 percent coupon notes due in 2019, gained 2.75 cents to 96.75 cents at 8:13 a.m. in New York, according to Trace, the bond price reporting system of the Financial Industry Regulatory Authority. That’s above their exchange offer price of 94 cents.
The pact allows OneWeb and Intelsat to save on costs as they seek to develop connections that can deliver video and broadband services anywhere in the world, including its less-developed parts. Intelsat operates a combined satellite-terrestrial communications network, while OneWeb is developing small, low Earth-orbiting satellites.
Intelsat and OneWeb have complementary radio-frequency licenses that they could use to better provide internet access on airplanes, among other markets, according to Andrew Spinola, an analyst at Wells Fargo & Co. The companies already are working with Gogo Inc. on such a service, he wrote in an earlier research note.
OneWeb is the latest creation of Greg Wyler, who has spent more than a decade trying to connect poorer, less-developed parts of the world to the internet. He hopes to launch a constellation of satellites that will extend the networks of mobile operators and internet service providers to serve new coverage areas at a lower cost.
The company raised $1.2 billion from Tokyo-based SoftBank and other investors in December. The funding was designed to help develop small satellites and pay for the construction of a facility in Florida that will churn out 15 of the devices a week, according to OneWeb, based at Exploration Park, Florida, an area near Kennedy Space Center.
OneWeb has also held discussions with SES SA, Inmarsat Plc and Telesat Holdings Inc., Bloomberg reported Monday.
Son, the chief executive officer of SoftBank, has made aggressive pledges on what OneWeb will be able to deliver. At Mobile World Congress, he compared OneWeb’s technology to a fiber-optic connection “coming straight to the Earth from space” that would “provide connectivity to billions of drivers from the satellites.”
Son has been on a tear of big investments, including the $32 billion acquisition of chip designer ARM Holdings Plc and the creation of the $100 billion Vision Fund with Saudi Arabia and other backers. Tokyo-based SoftBank is also one of Japan’s biggest wireless providers and controls Sprint Corp., the fourth-biggest wireless company in the U.S.
As part of the deal, which is expected to close late in the third quarter, OneWeb shareholders will receive Intelsat shares in the deal and Intelsat shareholders will retain the shares they currently hold. SoftBank will acquire any common shares at $5 a share; Intelsat will issue SoftBank and OneWeb holders 800 million shares.
Guggenheim Securities and Goldman Sachs were financial advisers to Intelsat. PJT Partners was the lead financial adviser to OneWeb and advised SoftBank. Barclays served as a financial adviser to OneWeb.