Shares of satellite communications specialist Intelsat (NYSE:I) dropped 15% Tuesday and 10% on Wednesday.
This being earnings season, you might expect that earnings had something to do with the decline. And you'd be right, though they weren't the sole cause of the stock move. Intelsat reported full-year earnings of $990.2 million ($5.56 per share, diluted) Tuesday morning, on revenues of $2.2 billion. That beat consensus expectations for revenues, and beat Wall Street's earnings hopes with a stick. Analysts had been telling investors to expect full-year profits of only $2.21 per share.
The bigger news Tuesday, though, was that Japanese conglomerate SoftBank has struck a deal to merge its OneWeb satcom business with Intelsat. SoftBank will also invest $1.7 billion in the resulting company, and own a 39.9% interest in it. Bloomberg reports the deal is valued at $7.8 billion.
When you consider how mightily Intelsat crushed earnings expectations for the year, it seems likely that Intelsat's two-day sell-off was an overreaction. Investors don't like the merger, but combining OneWeb's fleet of small satellites with Intelsat's larger satellite constellation will give the resulting company the ability to provide different services to all sorts of customers, depending on their need. Additionally, the deal promises to remove a big chunk of debt ($3.6 billion) from Intelsat's balance sheet, helping to stabilize its finances and boosting the chance that the resulting company will remain viable.