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With SS/L Purchase, MDA Corp. Finally Gains U.S. Foothold

Daniel Friedmann. Credit: MDA Corp. photo

PARIS — Canada’s MDA Corp. on Nov. 2 assumed ownership of U.S. satellite builder Space Systems/Loral (SS/L) with the closing of the $1.1 billion cash deal with SS/L owner Loral Space and Communications of New York, MDA and Loral announced.

The transaction, which had been announced June 26, apparently faced little resistance from U.S. regulators, perhaps in part because Palo Alto, Calif.-based SS/L is above all a builder of large commercial telecommunications satellite. It does relatively little work with the U.S. government.

MDA Chief Executive Daniel E. Friedmann said that with the global commercial market now entering what is likely a period of slower growth as the big fleet operators complete their recent capital spending programs, SS/L will be forced to look elsewhere for growth.

In a Nov. 1 interview, Friedmann said MDA — with direct and indirect help from U.S. customers over the years — has developed a suite of space robotics technologies he hopes to offer to U.S. government customers now that MDA can funnel the technology through a U.S. production site.

“I want to make this technology that we have built up at MDA available to U.S. government customers,” Friedmann said. “This transaction is all about revenue. We want to generate more revenue in the United States and in Canada. There is a huge demand for the kind of manned and unmanned robotics that we have developed. We just need to keep it in the United States.”

MDA’s space robotics business, whose future in Canada has been in doubt because of a lack of new business, recently won about $30 million in contracts from the U.S. Defense Advanced Research Projects Agency (DARPA) as part of preliminary work on a future in-orbit satellite servicing project.

Friedmann said DARPA has insisted that 75 percent of the work on this program, called Phoenix, be done in the United States. With SS/L, he said, this will no longer pose an issue. The same holds for multiple U.S. government contracts for which MDA should be a front-runner but has been unable to bid in the past because of its Canadian identity.

During the interview, Friedmann bent over backward to praise the U.S. government. His office went so far as to distribute a picture of him with the Stars and Stripes as sole backdrop.

In fact, Friedmann had been waiting years for this kind of transaction. In 2008, he almost had one, but in reverse: ATK of the United States offered to purchase MDA, a move Friedmann supported as allowing the Canadian company to access the U.S. government market.

The Canadian government blocked the transaction on grounds that it did not want Canada’s largest space hardware manufacturer to fall into U.S. hands.

Despite that rejection, Friedmann said, MDA even today counts U.S. entities as among its largest shareholders.

Buying SS/L will more than double Richmond, British Columbia-based MDA’s size. The satellite builder reported about $1.1 billion in revenue in 2011, compared with $800 million for MDA.

MDA does not make satellite platforms but in recent years has positioned itself as a satellite prime contractor for specific markets including Russia and the former Soviet Union. Using a Russian platform builder, MDA is prime contractor for a satellite for the Ukrainian government, and two satellites for Russian customers.

With SS/L now in-house, MDA will be able to offer complete satellite packages. SS/L in the past few years has been the most successful provider of satellites on the commercial market and presumably does not need MDA technology to continue in that role.

But Friedmann said MDA may be able to open markets, such as in the former Soviet Union, where SS/L to date has not secured much market share.

The rise of national satellite operators, often operating with only one or two spacecraft, has been one of the most notable developments in the global satellite telecommunications market in recent years and will help mitigate the spending decline among the largest commercial fleet operators, Friedmann said.

Under the terms of the sale, future liability for a patent-infringement lawsuit filed against SS/L by former customer ViaSat Inc. of Carlsbad, Calif., will remain with Loral. The patent alleges that ViaSat-owned technology has been embedded, without authorization, in many SS/L satellites.

Friedmann said MDA hired outside experts to examine the possible consequences of the lawsuit on SS/L’s future business. Their conclusion, he said, was that SS/L and MDA are protected against claims on future contracts. “We will continue to operate as we have done” at SS/L, he said.

New York-based Loral said Nov. 2 that it had received $968 million in cash for SS/L, plus a promissory note for $101 million to cover MDA’s purchase of real estate used by SS/L.

Loral said it would “evaluate the opportunity” of returning the proceeds of the sale to Loral shareholders through a special dividend.

It would be the second big cash payday for Loral shareholders this year, following a payment of $421 million, in two tranches, from a special dividend and recapitalization of satellite fleet operator Telesat, in which Loral has a majority economic ownership.

 

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