[Via Satellite 05-03-2016] SES <\/b>announced April 29 a $20 million investment in the Medium Earth Orbiting (MEO) satellite system O3b Networks<\/b>. The decision tipped majority ownership to SES, and will result in further collaborative satellite services between SES\u2019 Geostationary Earth Orbit (GEO) satellites and the O3b constellation.<\/p>\n
Prior to the investment, SES already owned 49.1 percent of O3b shares. With the additional $20 million, the company now owns 50.5 percent of shares, and has the option to go for the full 100 percent. SES\u2019 cumulative investment in O3b now totals 323 million, and the company views O3b as a lucrative means to boost its data-centric services.<\/p>\n
The core of SES\u2019 business remains video, which accounted for 71 percent of revenue during the operator\u2019s first quarter 2016 results, also released April 29. But whereas video grew year over year by 5 percent, mobility grew by more than 10 times that rate. During a conference call with investors following the financial results and O3b investment decision, Karim Michel Sabbagh, president and CEO of SES said O3b could be a boon to all of SES\u2019 major non-broadcast business sectors, namely mobility, government and enterprise communications.<\/p>\n
\u201cThe O3b value proposition is already resonating in the three data-centric market verticals targeted by SES. And in a number of cases we are also serving the same client through the combination of wide-beam capabilities, plus O3b\u2019s fiber in the sky network proposition,\u201d he explained.<\/p>\n
Today O3b operates a constellation of 12 MEO Ka-band High Throughput Satellites (HTS), each capable of 1.6 Gigabits per second (Gbps) with a latency of less than 150 milliseconds. The constellation entered commercial operations in September 2014, and Thales Alenia Space <\/b>is currently building a follow-on series of eight more spacecraft. O3b\u2019s revenue for 2015 came 70 percent from enterprise customers, 24 percent from mobility customers, and 6 percent from government customers. The MEO operator\u2019s backlog is $350 million, and more than 50 percent of customers have upgraded their service commitments.<\/p>\n
SES reported 60.6 percent year-over-year growth in mobility revenue for the first quarter of 2016. Enterprise and government, each 12 percent of revenues, declined a reported 18.1 percent and 5.9 percent respectively. Sabbagh said SES is seeing more demand for enterprise services thanks to combinations of MEO and GEO HTS, cited new government business in the U.S., Canada and the U.K., and described mobility as having \u201cunprecedented success\u201d since SES announced HTS programs targeting aeronautical and maritime customers.<\/p>\n
Sabbagh described the O3b investment as facilitating three goals for SES: expanding its reach, augmenting its capabilities, and enhancing its foundation for growth. The two operators were increasingly offering combined products since before SES took majority ownership. Particularly in the government space, SES Government Solutions<\/b> and O3b have conducted multiple demonstrations of video, including live 4K, for the U.S. government, and in February this year SES began offering a combined MEO-GEO satellite data network called SES Plus.<\/p>\n
\u201cIn the cases where we roll the two capabilities together, for some of our clients the consideration for taking on more of this combined capability was mostly around the value-add that would bring. In our view it has deemphasized any price pressure that we would have been subjected to,\u201d said Sabbagh.<\/p>\n
He added that SES had been premeditating the notion of full ownership of O3b since before placing orders for SES 12, 14 and 15 \u2014 all hybrid widebeam and HTS programs the operator announced in July 2014 and February 2015.<\/p>\n
\u201cWhen we were designing SES 12, 14 and 15, we were designing this with a view that at some point in time we would take control of O3b,\u201d said Sabbagh.<\/p>\n
O3b will help with providing differentiated HTS offerings, he added.<\/p>\n
The question now is what decision SES will make with respect to the remaining 49.1 percent of shares, which are valued at $710 million. According to Giles Thorne, equity analyst at Jeffries<\/b>, the most probable outcome is a move to claim all.<\/p>\n
\u201cOur base case is that SES will now exercise its call option to move to 100 percent,\u201d Thorne wrote in an April 29 research note. \u201cSES\u2019 appealing valuation has now been complemented by stable financial performance \u2014 the move to control O3b is a cherry on top.\u201d [contextly_sidebar id=\u201dzY6Gll33jJCzvQ7PKqrkMyuuFbY0Zjrj\u201d]<\/p>\n
SES has three potential avenues to take now. O3b\u2019s board of directors has agreed to weigh an Initial Public Offering (IPO) for the remaining shares. An IPO would follow receipt of the requisite regulatory approvals and the subsequent completion of SES\u2019 1.4 percent increase in shares to obtain majority ownership. If there is no IPO, SES can exercise a \u201ccall option\u201d to acquire all the remaining shares. Thorne wrote that the windows for opening an IPO for minority shareholders and for SES\u2019 $710 million call option run concurrently until the end of September 2017. Should neither of these scenarios play out, the third is for O3b shareholders to exercise a \u201cput option\u201d where SES would have the obligation to acquire all of the remaining shares in O3b, effective Oct. 1, 2017, for a baseline sum of $710 million, adjusted for an interest charge calculated at market rates.<\/p>\n
\u201cOur base case would be that SES exercises its call option \u2014 the $710 million call option proceeds implies an identical valuation to the \u2018move to control\u2019 option,\u201d wrote Thorne. \u201cAssuming an identical cost of capital, there is no reason why SES moving to 100 percent doesn\u2019t clear the same investment hurdles as the \u2018move to control\u2019 evidently did. This then turns the debate to how SES would finance the $710 million proceeds while keeping within its investment grade rating \u2014 management were very non-committal on the call.\u201d<\/p>\n
Sabbagh said SES is currently weighing all of its options.<\/p>\n
\u201cWe want to anchor these optionalities in a manor where the day we decide to execute one of these optionalities we will be able to do so with full transparency and, equally important, in full compliance with our financial framework. So we have to balance the considerations of fully acquiring O3b, in our view, with all the other strategic priorities that we as SES are pursuing \u2014 and we have now the ability to think through this question while being in control of O3b,\u201d he said.<\/p>\n
SES anticipates O3b will make $32 to $36 million in annualized revenue from each fully operational MEO satellite after reaching \u201csteady state\u201d utilization, which is targeted for the end of the third year of a satellite\u2019s commercial service. O3b is expected to generate revenue of more than $100 million in 2016, nearly doubling the revenue recorded in 2015. Sabbagh said O3b could ultimately realize $461 million to $518 million in annualized revenue by 2021, which would constitute 22 percent of SES fiscal year 2015 revenue. SES made its first investment in O3b six and a half years ago.<\/p>\n","protected":false},"excerpt":{"rendered":"
[Via Satellite 05-03-2016] SES announced April 29 a $20 million investment in the Medium Earth Orbiting (MEO) satellite system O3b Networks. The decision tipped majority ownership to SES, and will result in further collaborative satellite services between SES\u2019 Geostationary Earth Orbit (GEO) satellites and the O3b constellation. Prior to the investment, SES already owned 49.1 percent […]<\/p>\n","protected":false},"author":1,"featured_media":71176,"comment_status":"","ping_status":"","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"inline_featured_image":false,"footnotes":"","_links_to":"","_links_to_target":""},"categories":[2],"tags":[],"class_list":["post-71173","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-news"],"acf":[],"_links":{"self":[{"href":"https:\/\/starpath.global\/blog\/wp-json\/wp\/v2\/posts\/71173"}],"collection":[{"href":"https:\/\/starpath.global\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/starpath.global\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/starpath.global\/blog\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/starpath.global\/blog\/wp-json\/wp\/v2\/comments?post=71173"}],"version-history":[{"count":0,"href":"https:\/\/starpath.global\/blog\/wp-json\/wp\/v2\/posts\/71173\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/starpath.global\/blog\/wp-json\/wp\/v2\/media\/71176"}],"wp:attachment":[{"href":"https:\/\/starpath.global\/blog\/wp-json\/wp\/v2\/media?parent=71173"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/starpath.global\/blog\/wp-json\/wp\/v2\/categories?post=71173"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/starpath.global\/blog\/wp-json\/wp\/v2\/tags?post=71173"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}