OneWeb Ltd, a U.S. satellite startup backed by Japan's SoftBank Group Corp (9984.T), and debt-laden satellite operator Intelsat SA (I.N) agreed to merge in a share-for-share deal on Tuesday.
OneWeb is among a handful of startups planning to build, launch and operate thousands of small satellites to provide internet access worldwide. Elon Musk’s Space Exploration Technologies Corp unveiled plans in January 2015 for an internet-via-satellite network that would eventually include some 4,000 satellites.
A merger of Intelsat with OneWeb would eventually create a combined network of hundreds or even thousands of satellites in high and low altitudes around Earth.
SoftBank will buy voting and non-voting shares in the combined company for $1.7 billion in cash and take a 39.9 percent voting stake. Shares that the Japanese conglomerate will buy in the combined company will be purchased for $5 per share.
Shares of Intelsat fell 10 percent to $5.29 on the New York Stock Exchange after soaring 25 percent on Monday ahead of the deal announcement.
The deal comes as SoftBank, which has traditionally focused on telecoms and technology, shifts focus to more cutting-edge tech investments as telecom services markets mature. The merger will allow Luxembourg-based Intelsat, a satellite pioneer which broadcast Neil Armstrong's moon walk, to address its roughly $15 billion debt pile and provide improved service for customers.
"It will enable a smooth upgrade path for the customers ... similar to when your cell operator moves you from 2G to 3G to 4G to LTE and eventually 5G," Greg Wyler, OneWeb's executive chairman and founder, told Reuters.
Intelsat announced a series of debt exchange offers on Tuesday, which when combined with SoftBank's investment, will help reduce its debt by up to $3.6 billion. The merger and SoftBank's investment are both conditional on approval from Intelsat's bondholders.
OneWeb shareholders will receive Intelsat common shares in exchange for their shares while Intelsat shareholders will retain the shares they currently hold. The combined company will be led by Intelsat Chief Executive Stephen Spengler and will be domiciled in Luxembourg. Intelsat was an initial investor in OneWeb and took a minority equity stake in 2015, while SoftBank announced a $1 billion investment in OneWeb late last year. Guggenheim Securities and Goldman Sachs were financial advisers to Intelsat.
PJT Partners was lead financial adviser to OneWeb and also advised SoftBank. Barclays also acted as a financial adviser to OneWeb, and rendered a fairness opinion.
(Reporting by Narottam Medhora in Bengaluru and Irene Klotz in Cape Canaveral, Fla.,; Editing by Phil Berlowitz and Alan Crosby)