France's Eutelsat close to deal for UK satellite operator OneWeb -sources

French satellite company Eutelsat is poised to buy British rival OneWeb in a deal that could be announced as early as Monday, two sources close to the negotiations said on Sunday.

OneWeb was valued at $3.4 billion in its most recent funding round, one of the sources said. Eutelsat already has a 23% stake in OneWeb and is its second-biggest shareholder.

The merger of the two companies would strengthen their position in the race to build a constellation of low-orbit satellites, challenging the likes of Elon Musk-owned SpaceX's Starlink and Amazon.com Inc's Project Kuiper.

Demand for satellite launches is expected to accelerate after recent sanctions have sidelined the Russian space launch industry and giant satellite constellations could offer a new channel to beam broadband internet from space.

The tie-up is politically sensitive, as it would bring Indian billionaire Sunil Bharti Mittal, France, China and Britain together as shareholders of the combined entity. Bharti Global is OneWeb's biggest shareholder.

Eutelsat's biggest shareholder is France's state-owned investment bank Bpifrance, with a 20% stake. Its fourth-largest shareholder is China's sovereign fund China Investment Corporation, according to Refinitiv data.

OneWeb, for its part, was rescued from bankruptcy by the British government and India's Bharti Global. The takeover will leave the British government with a minority stake in the merged business, one of the sources said.

Eutelsat has a market value of 2.4 billion euros ($2.45 billion) on the Paris stock exchange, with a net debt of 3 billion euros as of the end of 2021.

Britain will retain special rights over OneWeb after the deal, the second source said, including a veto over sales to clients deemed dangerous for security reasons and a veto over a change in the location of headquarters.

These special rights also entail a veto over business relations that may compromise the so-called "Five Eyes" intelligence alliance comprising Australia, Canada, New Zealand, the United Kingdom and the United States and a say on the supply chain and launch decisions.

Eutelsat declined to comment.

Bloomberg was first to report on the deal.

($1 = 0.9794 euros)