Macron’s Moonshot looks like a long shot

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The last decade of satellite start-up OneWeb Ltd. looked like a space opera. Founded by an American entrepreneur and based in London, it has partnered with Google and Elon Musk, supplied Arianespace, attracted investments from Hughes Network Systems and SoftBank Group Corp. and went bankrupt. It was later rescued by the British government and India’s Bharti Global.

The next act has all the hallmarks of a post-Brexit moonshot for Europe’s war economy. Its announced 50-50 merger with France’s Eutelsat Communications SA would create a European champion to rival Musk’s SpaceX and Amazon Inc’s Project Kuiper.

The movement is both imperfect and yet also, in a way, inevitable.

The shareholders of Eutelsat, 20% owned by a French public investment company, have good reason to feel bruised by the terms and the timing. The company’s stock fell 17.8% on Monday, a sign that OneWeb’s lack of sales and future spending will weigh on earnings. As Bloomberg Intelligence analyst John Davies put it, a “merger of equals” would benefit OneWeb more than cash-generating Eutelsat.

But given that Eutelsat itself risked being left on the launch pad by its rivals, it also makes strategic sense.

Eutelsat has relied for too long on reliable cash flow but declining revenue growth from traditional satellite TV. The group’s sales fell from about 1.5 billion euros ($1.5 billion) in 2016 to 1.2 billion euros last year, according to Bloomberg data. Musk, meanwhile, forecast annual revenue of $50 billion from his lower-orbit Starlink venture, which is causing angst in Europe as its rollout ramps up. Investments in European space startups reached 610 million euros in 2021, a fraction of the $5 billion invested in American companies in 2020, according to a report by think tank Ifri.

Diversification into lower-orbit satellites means more risk and more capital expenditure for Eutelsat – a series of such projects have failed in the past (including OneWeb). But it also offers the opportunity to capitalize on greater demand for their faster speeds and higher power in industries like telecommunications. And in a wartime economy, he promises to bring more expertise in data and cybersecurity, as well as a bigger role for Europe in space – something close to Macron’s heart.

No doubt it would have been cleaner and easier for shareholders to imagine a takeover by Altice billionaire Patrick Drahi, whose €2.8 billion approach was rejected, or a merger with its rival SES which offered cost savings. Still, Drahi’s offer seemed opportunistic, lacking the obvious fit with his telecommunications empire, while SES would have triggered its own share of antitrust and national security issues.

There are a lot of details that still seem hazy. Governance of the combined entity will require political cooperation between governments that cannot even agree on fishing rights as a result of Brexit. Financially, it’s unclear how much spending will be required to compete with Big Tech’s billionaires; When Eutelsat first invested in OneWeb last year, management called it an “ideal” entry point because $5 billion had already been invested.

Overall, however, this plan feels like a microcosm of the current geopolitical environment — and the kind of corporate strategies that are getting a cold reception in the stock market. A once-reliable, cash-rich defensive play now transformed into a cash-hungry competitor in a strategic area dominated by US big spenders is not the kind of story many shareholders want to hear.

Yet aiming for the stars is exactly what Europe would need to avoid being left on the launch pad.

More from this writer and others on Bloomberg Opinion:

• Another billionaire wants a place in space: Chris Hughes

• Russia has just become the first former space power: Adam Minter

• Space Junk is our new tragedy of the commons: Andreas Kluth

This column does not necessarily reflect the opinion of the Editorial Board or of Bloomberg LP and its owners.

Lionel Laurent is a Bloomberg Opinion columnist covering digital currencies, the European Union and France. Previously, he was a reporter for Reuters and Forbes.

Chris Hughes is a Bloomberg Opinion columnist covering the deals. Previously, he worked for Reuters Breakingviews, the Financial Times and the Independent newspaper.

More stories like this are available at bloomberg.com/opinion

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