MDA Acquires Space Systems Loral in Blockbuster Deal (Updated)

In what can only be described as a blockbuster deal, MacDonald, Dettwiler and Associates Ltd (MDA) announced late today that it has acquired a larger company in Space Systems/Loral (SS/L). The announcement comes a day before the MDA's scheduled investor call and a day after they had announced a significant deal to provide the communications payload for the AMOS-6 Satellite.

MDA will acquire 100% of of SS/L in a deal valued at US$875 million. SS/L is a global market provider of commercial communications satellites based in Palo Alto, California and has 3200 employees with US$1.1 billion in revenues in 2011.

The principal components of the transaction include:

1. MDA's purchase of all of the equity of SS/L for US$774 million, payable in cash;

2. MDA's purchase of certain real estate used in connection with SS/L's business for US$101 million, payable through a bank guaranteed three year promissory note;

3. Cash dividends and other payments from SS/L to Loral equal to approximately US$112 million (representing the amount of SS/L's cash balances as of March 31, 2012) plus an incremental per diem amount (equating to approximately US$5.8 million per month) from March 31, 2012 to and including the closing date of the transaction; and

4. The transaction includes other potential adjustments, and Loral will retain principal responsibility for the ViaSat litigation.

"This is a game changing transaction for our Company," said Daniel Friedmann, MDA's president and CEO. "With one move, we are bringing together two market leaders to create a unique global communications and information company with a strong commercial focus. Post-acquisition, more than two-thirds of MDA's total revenues will come from the commercial market."

MDA which had been in the market to buy a significant U.S. asset last year but could not find a suitable asset to acquire had instead decided to spend up to $500 million to buy back its shares as it held a significant cash position at the time.

With a limited domestic market MDA had been looking south of the border for greater access to the US market. This deal now opens up new avenues for growth.

The parent company of SS/L, Loral Space & Communications Inc. and MDA's board of directors unanimously approved the terms of the agreement.

"Combining the world-recognized communications capabilities of MDA with SS/L creates a powerful space communications leader and enhances the business prospects, both commercial and government, for each of MDA and SS/L," said Michael B. Targoff, Chief Executive Officer of Loral Space & Communications. "With this transaction, SS/L's employees, customers and suppliers should be confident as to the long term prospects and direction for this highly valued contributor to the global communications infrastructure."

"Both Space Systems/Loral and MDA are already important suppliers to the worldwide satellite industry," said John Celli, President of Space Systems/Loral. "The combination is a very good strategic fit for both companies. Together, we will be in an even stronger position to support the growth requirements of both new and existing customers."

The agreement is subject to applicable regulatory approvals and closing conditions. Should regulatory and closing conditions be met the transaction is expected to be completed in a few months.

MDA if financing the deal with a three-year note payable for US$101 million, and approximately US$500 million of borrowings under a new $1.1 billion fully committed and underwritten credit facility from RBC Capital Markets along with cash on had.

According to MDA following the acquisition the combined company will have annual revenues of $1.9 billion for the calendar year 2011 and a combined backlog of $2.8 billion though March 31 of this year.

The combined company will now have 5600 employees and positions MDA has a major player in the commercial communications market.

Download the MDA investor presentation (PDF)