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Loral Space satellite unit sold to MDA

by Lou Whiteman | Published June 27, 2012 at 11:53 AM

MacDonald, Dettwiler and Associates Ltd. agreed late Tuesday, June 26, to acquire the satellite manufacturing arm of Loral Space & Communications Inc. in an $875 million deal designed to expand the Canadian communications company's exposure to the U.S. commercial market.

Terms of the deal call for Richmond, British Columbia-based MacDonald Dettwiler, or MDA, to acquire all of the equity of Space Systems/Loral for $774 million in cash, and certain real estate used by SS/L for an additional $101 million. SS/L is also scheduled to pay Loral upward of $135 million in cash dividends prior to the split, which is expected to be completed before year's end.

Palo Alto, Calif.-based Space Systems/Loral is a manufacturer of satellites used by broadcasters, communications companies and government customers. The company has been awarded more commercial satellite contracts than any other vendor since 2005, according to MDA.

MDA said the combination would generate about $1.9 billion in annual sales and have a backlog of $2.8 billion in orders, and give the company more exposure to the United States and other commercial markets. SS/L in 2011 generated operating Ebitda of $153 million on sales of $1.1 billion, and on its own has a backlog of more than $2 billion.

"This is a game-changing transaction for our company," MDA chief executive Daniel Friedmann said in a statement. "With one move we are bringing together two market leaders to create a unique global communications and information company with a strong commercial focus."

Demand is growing. Consulting firm Forecast International Inc. projects that companies will order $52 billion worth of satellites by 2021.

MDA said it would fund the purchase with cash on hand plus a three-year note payable for $101 million and about $500 million of borrowings under a new $1.1 billion credit facility from RBC Capital Markets.

New York-based Loral, which in addition to owning SS/L also holds a 64% interest in satellite operator Telesat Holdings Inc., said post-deal its board would evaluate options for returning after-tax proceeds from the sale to shareholders. Company CEO Michael B. Targoff in a statement said that the combination "creates a powerful space communications leader and enhances the business prospects, both commercial and government, for each of MDA and SS/L."

Loral last year launched an unsuccessful effort to sell off Telesat, saying in August after deal talks faltered that it might instead try to divest SS/L.

Bank of America Merrill Lynch is acting as lead financial adviser to MDA, with RBC Capital Markets also providing financial advice. Loral was advised by Credit Suisse Group, JPMorgan and a Willkie Farr & Gallagher LLP team led by partners Maurice Lefkort and A. Mark Getachew.

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Loral Space satellite unit sold to MDA

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