Alcatel and Finmeccanica seal space business merger

France's Alcatel and Italy's Finmeccanica sealed the merger of their space businesses on Friday in an attempt to boost their competitive position in a weak European market. The French telecoms equipment provider and the Italian defence group created two satellite-related joint ventures, one focused on manufacturing, the other on services, with combined annual sales of more than 2.1 billion euros ($2.74 billion).
The deal is a way for the two companies to increase their share of the European satellite market which suffers from flat global demand for telecom satellites and a scarcity of government contracts.
Europe's satellite market, a fraction of that in the United States, is also too small to support all suppliers. "The two companies are very complementary but there may be some redundancies in the manufacturing of telecommunication satellites," said Rachel Villain, analyst at Paris-based satellite consultancy Euroconsult.
The union comes as Alcatel and Finmeccanica are bidding, together with other members of their consortium, for the deployment and running of Europe's Galileo satellite navigation system, a rival to the US Global Positioning System (GPS).
Should the two companies be selected, Alcatel Chief Executive Serge Tchuruk estimated Galileo would bring both "several hundred million euros in business" annually, though he stressed this was "only a guess".
The winning consortia are expected to be announced in early March.
Tchuruk dismissed speculation that Alcatel's consortium Eurely, which includes Spain's AENA and Hispasat, could strike an agreement or tie-up ahead of the announcement with rival consortium iNavSat, made up of European defence group EADS, Thales and Britain's Inmarsat. "For the time being, there are two consortia in competition," Tchuruk said.
He said the Galileo project would cost a total of 7 billion euros, including the validation in orbit, the launch and manufacturing of 26 satellites, the running of the satellites up to 2010 and the net present value of operating costs later on. Alcatel also said an imbalance in the value of the assets each company was putting into the ventures meant Finmeccanica would owe it 109 million euros at the deal's closing date, expected by or around the summer.