By Robert Wall in London and Andy Pasztor in Los Angeles 

A tie-up that Japanese technology giant SoftBank Group Corp. tried to orchestrate between U.S. satellite startup OneWeb Ltd. and debt-laden satellite operator Intelsat SA collapsed after Intelsat bondholders failed to back the deal.

OneWeb, which is 20%-owned by SoftBank, in February said it would buy Intelsat, combining two different types of satellite fleets to offer low-cost, versatile connectivity spanning the globe. As part of the deal, SoftBank planned to inject $1.7 billion into the combined company, and would have held a 40% stake.

Intelsat on Thursday said it was terminating a debt exchange key to the merger because minimum conditions weren't satisfied by the May 31 deadline. The deadline had been extended multiple times.

OneWeb declined to comment on the development.

Intelsat Chief Executive Stephen Spengler said the company was disappointed that bondholders didn't accept the terms of the "complex transaction."

Still, he said Intelsat would work with OneWeb and SoftBank in the future. "We plan to jointly develop integrated solutions using both of our fleets," he said, with Intelsat also acting as a distributor to SoftBank.

The proposed deal would have brought together Intelsat's fleet of large satellites operating from high altitudes with OneWeb's network of perhaps more than 2,500 smaller, lower-flying spacecraft to provide connectivity from space.

Alok Sama, president and chief financial officer of SoftBank Group International, said the company was "disappointed" by the development and would continue to back OneWeb as a stand-alone venture. SoftBank will work with OneWeb "to seek alternative paths to accelerate its strategy," he said.

The attempted tie-up between OneWeb and Intelsat came as established satellite-services companies embrace newcomers to find ways to beam the internet to even the most remote locations. Luxembourg's SES SA last year agreed to buy all of O3b Networks Ltd. OneWeb's founder, Greg Wyler, also founded and served on the board of O3b.

Intelsat has weathered a string of acquisitions and leveraged buyouts stretching back more than a decade. Several private-equity firms acquired the company in 2004 for $3.1 billion. Four years later, a different set of private-equity partners closed a deal for the company, relying on only $5 billion of equity and the assumption of more than $11 billion of debt. Recently, Intelsat's management has been seeking strategies to manage its debt and boost sales.

For OneWeb, which remains on track to begin production this summer of its first batch of small and powerful custom-built satellites, the setback may have little impact on its aggressive growth plans, according to industry officials.

Backed by Airbus SE's technical expertise and SoftBank's financial clout, the company run by Mr. Wyler is pushing ahead with rapid, assembly-line production of satellites projected to cost around $1 million apiece.

Those plans will test whether such novel production strategies and launches of multiple satellites on a single rocket can deploy a reliable system of low-cost internet access around the globe. Other entrepreneurs -- including Elon Musk, various Silicon Valley players and legacy aerospace companies such as Boeing Co. -- also are considering multibillion-dollar projects featuring huge fleets of small communication satellites intended to orbit relatively close to earth.

According to industry officials familiar with SoftBank's strategy, chairman Masayoshi Son and his team weeks ago recognized the likelihood of the proposed deal falling apart and began evaluating other potential acquisition targets among satellite operators. It isn't clear if that process will result in a specific offer in the near future.

Growth for most operators of large communications satellites, some costing $200 million or more apiece, has been sluggish.

Many operators have paused ordering additional in-orbit capacity while they assess industry trends and the anticipated impact of lower-cost rivals seeking consumer and business customers.

Small satellite constellations also are being studied by the Pentagon as potential alternatives to current commercial and military systems built around larger spacecraft.

OneWeb anticipates launching its initial batch of satellites next year and projects providing service to Alaska as soon as 2019, as part of its plan to connect rural areas in the U.S. and elsewhere to the internet.

Industry officials expect that in the future, operators of some constellations of large satellites will continue seeking ways to combine them with smaller satellites operating in low-earth orbit in order to provide seamless, more-flexible connectivity options. Traditional satellite makers also have endorsed that concept.

Write to Robert Wall at robert.wall@wsj.com and Andy Pasztor at andy.pasztor@wsj.com

(END) Dow Jones Newswires

June 02, 2017 02:47 ET (06:47 GMT)