MDA's $1.1B Purchase of SS/L Seen as Boost for Both Firms
PARIS — MDA Corp.’s planned purchase of the world’s largest manufacturer of commercial telecommunications satellites, Space Systems/Loral (SS/L) of California, for $875 million in cash will give SS/L an owner with a long-term stake in the satellite and space-hardware industry, officials with both companies said.
Richmond, British Columbia-based MDA, which has been scouting for a major acquisition of a U.S. space technology company for more than a year following MDA’s sale of its real estate assessment business, is paying 5.7 times SS/L’s 2011 operating EBITDA, or earnings before interest, taxes, depreciation and amortization, the companies said in June 26 statements.
For SS/L’s parent company, New York-based Loral Space and Communications Co., the deal puts an end to a monthslong search for the best way to monetize its investment in the satellite manufacturer. Loral had originally promised shareholders it would spin off Palo Alto-based SS/L, but then suspended those plans because of an offer that the company said could generate better returns for shareholders.
MDA was not the source of that decision, SS/L Chief Executive John Celli said in a June 27 interview. Celli declined to disclose the nature of the original proposal, but both he and MDA Chief Executive Daniel Friedmann said several serious offers had been made for the satellite manufacturing business.
Loral said that in addition to the $875 million in cash, which includes $101 million in SS/L property, Loral shareholders will receive dividends and other payments from SS/L valued at $112 million.
A final series of payments — Loral refers to it as a “per diem amount” — of about $5.8 million per month will be paid by MDA until the deal closes. The start date for this payment was last March 31, Loral said.
When all these pieces are assembled, MDA is paying about $1.1 billion for SS/L, which reported $1.1 billion in revenue in 2011. SS/L reported operating EBITDA of $153 million in 2011 and, as of March 31, reported a backlog of $2 billion.
Friedmann said purchasing SS/L “is a game-changing transaction for our company. Post-acquisition, more than two-thirds of MDA’s total revenues will come from the commercial market.”
MDA reported about $800 million in revenue in 2011. The company has long protested that the same Canadian government that prohibited MDA’s sale to ATK of the United States in 2008 has declined to maintain a space program big enough to support MDA’s growth.
In search of growth vectors to compensate for the lack of sufficient Canadian government business, MDA in the past couple of years has moved up the satellite food chain to offer full commercial telecommunication satellite payloads and even complete satellites.
The company has been successful in Russia and recently won a contract to provide the electronics payload for the Amos 6 satellite owned by Spacecom of Israel.
In a June 27 conference call with investors, Friedmann said he expected SS/L’s current management team to stay with the company, and that acquisition was not expected to result in layoffs at MDA or SS/L.
A Crowded Market
MDA’s post-SS/L reliance on the commercial space market for two-thirds of its revenue could have its downside. The commercial market has proved itself to be cyclical, and is highly competitive.
With U.S. Defense Department space-infrastructure spending no longer growing, U.S. satellite prime contractors Lockheed Martin Space Systems and Boeing Space and Intelligence Systems are sharpening their focus on the commercial market.
SS/L has eight notable competitors in a global satellite telecommunications market whose near-term demand is for less than 30 geostationary-orbiting telecommunications satellites per year: Lockheed Martin, Boeing and Orbital Sciences Corp. of the United States; Astrium Satellites, Thales Alenia Space and OHB AG of Europe; Mitsubishi Electric Corp. of Japan; and the China Academy of Space Technology.
Friedmann said the purchase will make MDA less reliant on a few large contracts in addition to reducing its exposure to the government market. A post-acquisition MDA, he said, would not feel as much pain if a contract such as the Canadian Space Agency’s Radarsat Constellation Mission is slowed or stopped, as has been the case in the past year.