The Fixed Satellite Services (FSS) businesses of Loral Space & Communications Inc. and Telesat Canada will be combined under a new Canadian company that will become the fourth largest operator in the world, the companies announced Dec. 18.
Loral and its partner, Canada’s Public Sector Pension Investment Board (PSP Investments), will acquire 100 percent of the stock of Telesat Canada from parent company BCE Inc. for $2.8 billion as well as the assumption of $148 million in debt.
The Telesat operations will be combined with Loral Skynet’s business under a new organization named Telesat. The Canadian-controlled and Ottawa-based company will be the world’s fourth-largest satellite operator with 11 on-orbit spacecraft and an additional four satellites scheduled to be placed into orbit throughout the next three years. The combined operations’ recorded revenues of $568 million in the year ended Sept. 30, and the new Telesat will have a backlog of $4.9 billion.
“I think it’s a great deal for Telesat, BCE and its customers,” said Daniel Goldberg, the president and CEO of Telesat who will serve as CEO of the new organization. “Being larger, we’ll have more advantages. It won’t hurt our position but enhance it quite a bit. … The advantage is that we can diversify the business to reach parts of the world experiencing significant growth, not just in Canada where we’ve been successful but in other locations.”
The all-cash deal, subject to regulatory approvals, is expected to close by mid 2007. Loral will hold 64 percent of the company, with PSP Investments controlling the remaining 36 percent. Consistent with Canadian law, Loral’s total voting equity will be 33.3 percent, with PSP Investments and other Canadian investors having 66.7 percent, with 70 percent of Telesat’s board members being resident Canadians.
It was Telesat’s stable cash flow and the long-term nature of its contracts that made the deal attractive to PSP Investments, said Anne-Marie Laurendeau, director of communications and government relations.
“Also, BCE is one of the largest customers for strategic investment in Telesat and international assets. Adding Loral provides international growth automatically,” she said. “There are great future worldwide consultation opportunities in the FSS business, and there are great benefits in partnering with Loral in the manufacturing side as well. Given the long-term nature of the pension fund, it’s a great long-term investment for us.”
While the new Telesat likely will never catch up to FSS giants Intelsat and SES Global, the increased size will help the two organizations compete more effectively.
“The satellite industry is consolidating, and the smaller guys are getting into consolidating to compete,” said satellite communications analyst Steve Blum, president of Tellus Venture Associates in Seaside, Calif. “Telesat was not a huge company, and in the part of the world it serves it was a good candidate for a takeover. This makes them fourth largest; the question is whether there’s room for four. We haven’t seen the end of the consolidation. It’s pretty basic: The bigger you are, the better you can compete. It increases the capacity internally for you to use, and you cut your costs of overhead.
It’s a natural progression, and the question is where does it stop? It hasn’t stopped yet.”
Telesat may look for other merger or acquisition opportunities once the integration of Loral Skynet and Telesat are complete, Goldberg said.

“I think the satellite services market is going to improve,” Goldberg said. “It’s healthier than ever with a significant amount of expansion for video services, HDTV, VSAT networks, two-way broadband – Telesat’s been an innovator there. When you go outside the developing economies around the world and see the emerging markets that don’t have the required terrestrial [infrastructure] means the sector can continue to improve. We’re optimistic about the outlook of the sector, and that’s reflected by the investment.”

Blum is not sure that the new Telesat could play in future consolidations as an acquirer but may instead be an attractive target. “Now you have a larger candidate for some kind of a deal with one of the three bigger ones,” he said. “It could make them more attractive or make them stronger to pick up someone else. It’s an evolutionary step.

“Given the way with their current capital structure is set up, they’re probably not likely [to acquire another company]. The way that private equity has been reshaping the industry, you could very well be seeing players come on board who could make something happen, [but] it’s all speculation at this point.”

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