SoftBank (TYO:9984) is unlikely to keep supporting OneWeb, a source familiar with the situation said, as an activist investor agitates for change at the Japanese internet giant amid rumours that its LEO broadband holding is mulling bankruptcy.

Several potential buyers could fit with the venture if it goes down the M&A route, with wealthy commercial satellite entrepreneurs among those with solid positions if a situation were to happen, the source said. Interest could come from major satellite operators. OneWeb and SoftBank, which recently won regulatory approval to merge its US MNO Sprint (NYSE:S) with T-Mobile (NASDAQ:TMUS), were unable to comment before this report was published.

A OneWeb equity event, however, is not a certainty, the person said. And nothing is likely to happen soon in part because the coronavirus crisis is moving business decisions further ahead as executives huddle, look to shore up balance sheets and focus on immediate needs.

It is less likely that OneWeb goes into bankruptcy protection in part because interested parties would lose control of the process, the person said. This situation would be especially tricky in part because OneWeb’s major asset is spectrum. The outcome is that Softbank is likely to threaten bankruptcy as a negotiating tool to force “severe” restructuring ahead of a sale.

In mid-March, Bloomberg reported that OneWeb is considering a bankruptcy to address a cash crunch as it grapples with high costs and stiff competition, citing unnamed people with knowledge of the situation. It noted that the company is considering court protection even as it continues to review out-of-court alternatives.

Rumours started late last year that OneWeb was preparing to tap investors for another US$1bn as the costs soared for its plan to launch hundreds of satellites into space in 2020 and beyond. It had raised US$1.25bn in the early part of 2019, bringing its total haul to US$3.4bn.

Activist investor seeks SoftBank changes

US hedge fund Elliott Management, which took a 3% stake in SoftBank worth US$3bn in early February, is seeking several outcomes, including the sale of up to JPY4.5tn (US$40.4bn) in assets over the next four quarters, according to a PitchBook analysis. Some JPY2tn (US$18bn) of that would go toward repurchasing its own stock, which SoftBank believes is significantly undervalued, and the remainder would be used for debt redemptions, bond buybacks and to increase cash reserves.

A key reason is that SoftBank has not succeeded in getting big sovereign commitments as part of an investment drive, the source said. Indeed, CEO Masayoshi Son in February said during a conference in Japan that he is scaling back plans for another giant technology fund worth US$100bn.

The Saudis and the UAE declined to reinvest in SoftBank, though Son succeeded in enticing new investment from the sovereign wealth fund of Kazakhstan. Bloomberg reported that he spoke to an almost empty room in October during an investment summit in Saudi Arabia amid rumours about tensions between him and Saudi Deputy Crown Prince Mohammed bin Salman.

The first Vision Fund, which was backed by the sovereign wealth funds of Saudi Arabia and Abu Dhabi, spent more than US$70bn in less than three years.

Other pressures are building on SoftBank, as Elliott Management seeks to force a dividend for China-based e-commerce group Alibaba (NYSE:BABA), the source added, citing well-informed sources. This would calm investors, as SoftBank is considering offloading US$12bn-15bn worth of shares in Alibaba, PitchBook added.

Elliott Management is also insisting on better governance in OneWeb. Company founder Greg Wyler has largely been pushed aside in the administration of it in part because of questions about his management, the source claimed. Wyler also founded O3b Networks, the satellite operator had a series of restructurings until investor and satellite operator SES (EPA:SESG) acquired outstanding shares in May 2016. 

SoftBank’s bailout of office-sharing startup WeWork is expected to be a “huge cash drain and black eye” for it, the source said. Rumours surfaced in mid-March that SoftBank might be backing off a US$3bn tender offer of shares WeWork. That commitment was part of a larger package, along with a US$1.5bn acceleration of equity it had already promised and US$5bn in syndicated debt. WeWork needs the fresh cash in part because the company’s IPO fell apart last year.

It would not be a surprise if investment bank PJT Partners was having informal discussions with SoftBank/OneWeb in part because the firm was mandated in prominent satellite transactions. These include a private equity consortium's US$3.4bn takeover of Inmarsat (LON:ISAT). PJT Partners was unable to comment before this report was published.

Some former employees of OneWeb are understood to have recently been asking for help so that they can find new jobs in the wake of massive losses following the coronavirus crisis.

“Their sense is that the announcement by SoftBank is a way to put pressure on OneWeb,” the person said. “I think there’s more reality to it.”

Who would fit?

Wealthy entrepreneurs such as Jeff Bezos and Elon Musk could potentially show interest in OneWeb for business reasons if it goes on the block, though Bezos is likely in a better position, the person said, adding, "there's always opportunity in turmoil".

Amazon (NASDAQ:AMZN), which Bezos controls, could benefit simply from the spectrum OneWeb is licensed to use. Its 3,236-satellite Kuiper constellation aims to provide low-latency, high-speed broadband connectivity to unserved and underserved communities around the world, a mission that gels with OneWeb’s.

And Bezos is targeting the data services from satellite startups, as part of Amazon’s AWS Ground Station. The addition of a 650-strong constellation would help drive this business.

As for Musk, OneWeb would make a fit with SpaceX's StarLink constellation. However, he is focused on other priorities, as SpaceX seeks to raise its next funding round in large part from a range of new investors with little or no knowledge of the satellite sector, analyst Tim Farrar said in a recent blog. He is targeting US$1bn and recently had some hires.

And Musk is likely to pass on OneWeb in part because of a past relationship. Originally named WorldVu, OneWeb was working closely with SpaceX to explore satellite internet services, but no relationship was established.

Other players could be interested if a deal is in the offing, the source said, including EchoStar Corp. (NASDAQ:SATS), Eutelsat (EPA:ETL) and SES for various reasons. For instance Charlie Ergen, who controls EchoStar, has been amassing spectrum.

Though Viasat (NASDAQ:VSAT) could be interested in a deal, CEO Mark Dankberg is focused on the ViaSat-3 constellation in planning.

Other companies would not make a good fit, including Intelsat (NYSE:I), Iridium Communications (NASDAQ:IRDM) and Telesat, the person said. They are focused on other priorities.