Advanced Television

Loral and Telesat to merge

November 24, 2020

By Chris Forrester

A reconstruction between Loral Space & Communications and Canada’s Telesat has been under assorted discussion for years, and years, and then some!

The complications around any merger were made especially challenging by joint cross-holdings between Loral and Telesat, and then further compounded by their major shareholder Canada’s Public Sector Pension Investment Board (PSP Investments).

Those challenges have been overcome, and an announcement on November 24th says that a definitive agreement with PSP and Telesat Canada (Telesat) to combine Loral and Telesat into a new Canadian public company (New Telesat).  Upon closing of the transaction, the stockholders in Loral, together with PSP Investments and certain current and former management shareholders of Telesat, will beneficially own all of the equity in New Telesat in approximately the same proportion as their current, indirect ownership in Telesat.

Loral stockholders not affiliated with the funds managed by MHR Fund Management LLC (MHR Funds) will beneficially own 26.1 per cent of the economic interests in New Telesat, with the MHR Funds, PSP Investments and management shareholders of Telesat beneficially owning the remaining 36.6 per cent, 36.7 per cent and 0.7 per cent, respectively, of the economic interests in New Telesat (such percentages have been subjected to rounding adjustments). New Telesat shares will initially be listed on the Nasdaq Global Select Market, and New Telesat is also considering a listing for its shares on a Canadian stock exchange.  New Telesat’s governance provisions will contain special features designed to maintain majority Canadian board and voting control, said a formal statement.

Sweetening the deal considerably will be a special dividend of US$1.50 a share amounting to $46.4 million. This special dividend will be paid on December 17.

Loral and Telesat will also make certain cash payments to PSP Investments in connection with the transaction, including a payment of $7 million and a payment to adjust for the value of Loral’s non‑Telesat assets and liabilities at the time of the closing of the transaction.

Now that this deal is done it is expected that ‘New Telesat’ will speedily announce who is to build its proposed fleet of LEO satellites.

Michael B. Targoff, Vice Chairman of Loral, said, “The transaction announced today reflects our long-standing efforts to maximize value for Loral stockholders.  This transaction will consolidate all of the equity ownership of Telesat in the capital structure of New Telesat and will bring substantial benefits to Loral stockholders.  In addition to affording Telesat the benefits of being a publicly traded Canadian company through New Telesat, Loral stockholders may elect to hold their interests directly in New Telesat, which should over time lead to improved liquidity.  We are extremely pleased to have finally achieved this result.”  Commenting on the declaration of the special dividend, Mr. Targoff said, “At Loral, we have now fulfilled our stated intention to distribute substantially all of our cash to stockholders except for what is needed to fund working capital and certain other liabilities.”

Dr. Mark H. Rachesky, Chairman of the Board of Directors of Loral, said, “The conclusion of this transaction represents an important milestone in our plan to deliver significant value to all Loral stockholders.  Telesat is revolutionizing the provision of broadband internet connectivity worldwide by developing the most advanced constellation of low earth orbit (LEO) satellites and integrated terrestrial infrastructure ever conceived.  The ownership structure of New Telesat will facilitate access to the capital markets for continued advancement of LEO, positioning New Telesat for substantial growth to further enhance shareholder value.”

Regarding the dividend declaration, Dr. Rachesky said, “The Loral Board has worked diligently over the last decade to maximize value for shareholders, first, by successfully turning around and selling our former satellite manufacturing business for over $1 billion and next by using the strong free cash flow generated at Telesat to enable Telesat to invest in its state-of-the-art satellite fleet and to pay extraordinary dividends.  In addition to the significant equity interest in New Telesat that the Loral stockholders will collectively receive in the transaction, the Loral Board has delivered to stockholders cash dividends, including the dividend declared today, of over $49 per share, or an aggregate in excess of $1.5 billion.”

There are a few conditions attached to the deal. The parties said: “In connection with the transaction, the Loral Board of Directors has adopted a shareholder rights plan that would be triggered if a party (other than the MHR Funds) acquires or announces the intention to acquire shares of Loral voting common stock such that after giving effect to the acquisition the party would own more than 15 per cent of the Unaffiliated Shares, or for those Loral stockholders (other than the MHR Funds) already over such 15 per cent threshold, if such stockholder increases its ownership of such Unaffiliated Shares by 0.001 per cent or more.  The shareholder rights plan will expire immediately upon the first to occur of receipt of the Majority of the Unaffiliated Vote, termination of the definitive transaction agreement and November 23, 2021.  The MHR Funds have also entered into a separate standstill agreement prohibiting the MHR Funds and their affiliates from acquiring more than an additional 6 percent of the outstanding shares of Loral voting common stock prior to the conclusion of the stockholder meeting.”

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