British satellite darling OneWeb and French competitor Eutelsat confirmed this morning that they will push ahead with the £2.8bn merger.
Eutelsat is set to suspend its dividend for two years to pump investment into OneWeb’s low-Earth orbit satellite network, as part of the all-share deal.
The deal is intended to forge a satellite powerhouse to rival Elon Musk’s SpaceX and Starlink, which are currently dominating the satellite communications industry.
However, Eutelsat being partly owned by China Investment Corporation (CIC) – a sovereign wealth fund which manages part of the People’s Republic of China’s foreign exchange reserves – has raised concerns over national security.
Unlike recent defence and technology infrastructure deals that have fallen under scrutiny, it is unclear that a OneWeb merger with Eutelsat would face a similar fate to the takeover of Newport Wafer Fab by Nexperia – which is currently being dragged through a lengthy government review.
Andy Chambers, industrials analyst at investment research group Edison, told City A.M.: “The UK government is already a stakeholder with a golden share so presumably has been consulted in advance and a deal appears implausible without its consent in the first place.
“It undoubtedly has to determine its view between the future funding burden for OneWeb on the UK taxpayer which could be alleviated with any overarching national security issues and priorities that would include Chinese involvement.”
Eutelsat will combine its 36-strong fleet of geostationary satellites with OneWeb’s constellation of 648 Low Earth Orbit satellites, of which 428 are currently in orbit.
OneWeb CEO Neil Masterson called the deal a “testament” to the strong demand the satellite giant has seen since launching our commercial services for governments, businesses, and communities.
“This combination accelerates our mission to deliver connectivity that will change lives at scale and create a fast growing, well-funded company which will continue to create significant value for our shareholders,” he added.
Beyond national security concerns, the tie-up could raise competition flags. The Competition and Markets Authority yesterday launching the first phase of an inquiry into fellow British satellite heavyweight Inmarsat’s £5.4bn takeover by the US’ Viasat.
Competition lawyer at DMH Stallard, Jonathan Compton, told City A.M. that national security and investment concerns are “less [likely] with allied countries, unlike countries who may not have our best interests at heart.
“Where a Chinese shareholder’s involved, that will cause concerns,” he said, adding that both Conservative leadership contenders have identified China as a country which requires an increasingly hard-line stance.