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Loral Space & Communications Inc. has agreed to sell its satellite manufacturing subsidiary, Space Systems/Loral (SS/L) to Canadian communications rival MacDonald, Dettwiler and Associates Ltd for about $875 million.
The deal is set to enhance Macdonald Dettwiler's position in the communications arena and creates potential for increased business with both commercial and government clients.
"Both Space Systems/Loral and MDA are already important suppliers to the worldwide satellite industry," John Celli, President of Space Systems/Loral said in a statement. "The combination is a very good strategic fit for both companies."
MDA said the acquisition, which will immediately boost its earnings, will make it a major player in commercial communications and provide it with critical mass in the U.S. market.
"This is a game changing transaction for our company," said Daniel Friedmann, MDA's chief executive in a statement. "Post-acquisition, more than two-thirds of MDA's total revenues will come from the commercial market."
California-based SS/L has developed satellites that are used for television broadcasting, direct-to-home television services, broadband communications, military communications, wireless telephony, digital satellite radio, weather monitoring and air traffic management.
Following the acquisition, MDA expects to have combined annual revenues of close to $2 billion, and a combined order backlog of $2.8 billion.
"Space Systems/Loral's business is fundamentally driven by the worldwide demand for television, digital audio, broadband Internet, mobile communications, and voice telephony," said Friedmann. "By acquiring one of the major companies that enable these essential communications services, MDA will move immediately to the forefront of this growing business."
MDA plans to finance the transaction with cash on hand, a three-year note payable for $101 million, and about $500 million of borrowings under a new $1.1 billion fully committed credit facility from RBC Capital Markets.
The boards of both companies have approved the deal, which is expected to close later this year after certain regulatory approvals.
PROCEEDS TO SHAREHOLDERS
Loral said in addition to the $875 million it will also receive cash dividends and other payments from its SS/L subsidiary, which are expected to be in excess of $135 million.
MDA will pay $774 million in cash for all of the equity of SS/L. It will also pay $101 million through a bank guaranteed three-year promissory note for certain real estate assets that are tied to the SS/L business.
Loral said its board intends to evaluate alternatives for returning to shareholders the after-tax proceeds resulting from the divestiture of SS/L.
Loral's other businesses include a 64 percent interest in Telesat, which owns a global fleet of satellites. It provides video broadcasting to customers across the globe and also offers broadband services for corporate, telecom and government clients.
The proposed deal for SS/L comes roughly four years after the Canadian government stepped in to block a $1.33 billion sale of MDA's own satellite arm to U.S. rival Alliant Techsystems In.c, on the basis that the deal was not of 'net benefit' to the country.
Canada feared that the sale of the MDA unit would have led to the loss of crucial technology and hampered its satellite surveillance capabilities. It marked the first time that the country used the powers of the Investment Canada Act to block a foreign takeover of Canadian assets.
BofA Merrill Lynch acted as lead financial advisor to MDA in connection with the transaction. RBC Capital Markets also provided financial advice to MDA. Credit Suisse and J.P. Morgan acted as financial advisors to Loral on the deal.