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Satellite Giants Eye Deals Ahead of $9 Billion Windfall

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(Bloomberg) -- Europe’s biggest satellite companies are soon to be armed with a massive warchest and are expected to play a major role in the continuing wave of satellite deals.

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Intelsat SA and SES SA, both headquartered in Luxembourg, are set to receive as much as $8.8 billion over the coming years for selling airwave rights to the U.S. government for 5G wireless communications.

The first tranche of that money is due imminently. Although the companies have already earmarked billions for strengthening their balance sheets, and previously argued over how to split the pot, industry insiders are expecting a new wave of deals.

SES, headquartered in a castle in eastern Luxembourg, was working with an adviser for a potential takeover of Britain’s Inmarsat Group Holdings Ltd last year and held discussions with the company, according to the people, who asked not to be named because the discussions are private. However, California-based Viasat Inc beat rivals to buy Inmarsat for $4 billion in November.

Meanwhile Intelsat is about to exit bankruptcy. The Chapter 11 process means its biggest creditors will become its owners and they could be keen for a swift exit, including potential deals with a rival like SES, the people said.

However, post-bankruptcy restructuring will make any dealmaking more difficult, and France’s Eutelsat Communications SA could be a more logical fit for SES, the people said.

Eutelsat shares rose as much as 3.4% in Paris, the most in two months. Intelsat and SES declined to comment.

The world’s biggest space communications businesses have been attempting to bulk up in the face of new challengers led by Elon Musk’s Starlink. Last year was the busiest year for satellite M&A deal volume since 2007, according to data compiled by Bloomberg, with companies signing 60 deals worth $18 billion.

“The most obvious combination is Eutelsat plus SES, as it would create a lot of savings on the cost base and capital expenditure,” said Kepler Cheuvreux analyst David Cerdan in an email, adding that the central question is finding an agreement between France and Luxembourg’s governments.

That merger could boost net profit by 30% and create “the indisputable world-leading fixed-satellite service operator,” Cerdan wrote in a note to clients on Monday.

Eutelsat executives have said they would “welcome consolidation” but last year parried telecom tycoon Patrick Drahi’s $3.2 billion offer to buy the company. The French government has an active stake in the business, and ministers in Paris would prefer a tie-up with rival SES to a deal with Drahi, according to two people familiar with the matter.

Any merger involving SES might have to wait for France’s elections in April, and what’s more Eutelsat’s new CEO Eva Berneke is also only days into the job. Representatives for Eutelsat declined to comment.

A spokesperson for the French Ministry of Finance said the government would study any proposals put to it “with the precondition of defending the interests of the state” like sovereignty and access to space.

(Updates with Eutelsat shares.)

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