By Mathieu Rosemain
PARIS (Reuters) -Eutelsat Communications, the world's third-biggest satellite operator by revenue, said on Wednesday it expected its planned tie-up with Britain's OneWeb to lift annual sales to 2 billion euros ($1.95 billion) by 2027.
The merger, announced in July and closely monitored by the French and British governments, aims to combine Eutelsat's geostationary satellite fleet with OneWeb's low-earth orbit constellation to offer fast internet services by satellite.
The leading companies currently fighting for a slice of the satellite internet market are Elon Musk-owned SpaceX's Starlink and Amazon.com (NASDAQ:AMZN)'s Project Kuiper.
The French group expects annual sales of the merged entity to amount to about 1.2 billion euros in 2023, following the finalisation of the deal. It said it expected core operating profit to rise at an even faster pace than revenue.
Earnings before interest, tax, depreciation and amortisation (EBITDA) for the newly formed company should grow by more than 10% each year to reach approximately 1.4 billion euros in 2027, up from 700 million euros in 2023, it said.
Eutelsat also prolonged its no-dividend policy by a year to three fiscal years to funnel cash flow to investments. Shares had dropped by more than 2% in early trading.
"Overall we continue to struggle with the concept of using 'cheap' Eutelsat equity to fund such a high risk acquisition like OneWeb," JPMorgan (NYSE:JPM) said in a note.
Eutelsat - which would own 100% of OneWeb as a result of the deal, which values its British peer at about $3.4 billion - aims to tap into the growth of real-time video gaming and rising demand for fast internet connections from companies, which increasingly rely on cloud computing services for their daily operations.
Eutelsat, whose market value has fallen by almost two thirds in five years, also plans to offset the gradual decline of its business distributing TV channels worldwide with the new revenue stream.
The group's first-quarter sales fell by 4.5% on a like-for-like basis to 287 million euros, it said on Wednesday.
It said the decline in sales matched its own targets and it confirmed its full-year targets, including an annual adjusted discretionary free cash flow of 420 million euros.
($1 = 1.0283 euros)