MDA to acquire 100% of Space Systems/Loral

27 June 2012

MacDonald, Dettwiler and Associates Ltd. has signed an agreement to acquire 100% of Space Systems/Loral, Inc. (SS/L) for US$875 million in a transaction that is immediately accretive. Headquartered in Palo Alto, California, SS/L is the global market leading provider of commercial communications satellites, serving a global customer base. The acquisition transforms MDA into a major player in commercial communications and provides the Company with critical mass in the U.S. market.

“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.”

The transaction meets MDA’s long-term objective of gaining a stronger presence in the U.S. market. SS/L has a U.S.-based workforce of 3,200 highly skilled employees, and over one million square feet of state-of-the-art facilities. SS/L will continue to operate under its well-established brand and proven management team.

Following the acquisition, MDA will have combined annual revenues of $1.9 billion (calendar year 2011), and a combined backlog of $2.8 billion (March 31, 2012). The acquisition is also expected to provide global opportunities for future growth as MDA enters markets fuelled by some of today’s most compelling consumer communications needs.

“Space Systems/Loral’s business is fundamentally driven by the worldwide demand for television, digital audio, broadband Internet, mobile communications, and voice telephony,” said Friedmann. “Billions of people around the world depend on these services and demand continues to increase. By acquiring one of the major companies that enable these essential communications services, MDA will move immediately to the forefront of this growing business.”

SS/L has gained a strong market presence serving major commercial satellite operators and has been awarded more commercial satellite contracts worldwide than any other company since 2005 (Futron Satellite Orders Report). SS/L revenues for 2011 were US$1.1 billion, with pro-forma operating EBITDA of US$153 million. SS/L has a backlog of US$2 billion (March 31, 2012), providing good revenue visibility going forward.

“The combination of Space Systems/Loral’s world-class commercial communications expertise with MDA’s strengths in essential information solutions provides exciting opportunities for growth for the new company and continuous strong support to our current and future customers’ business,” said John Celli, president of Space Systems/Loral.

Transaction Details and Process

Loral Space & Communications Inc., the parent company of SS/L, and MDA have executed a definitive agreement. The boards of directors of MDA and Loral have each unanimously approved the terms of the agreement. The agreement is also subject to applicable regulatory approvals and certain closing conditions customary for this type of transaction. Subject to satisfying those approvals and closing conditions, the transaction is expected to be completed in a few months.

“This transaction is structured to provide MDA with a full tax step-up for the purchase price for U.S. tax purposes and the transaction is also immediately accretive to MDA’s earnings per share,” said Anil Wirasekara, MDA’s executive vice-president and CFO. MDA will finance the transaction with cash on hand, 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. The credit facility has an accordion feature to borrow an additional US$250 million. “Post-transaction, MDA will maintain a prudent leverage ratio and will continue to have more than adequate capital to fund further growth opportunities,” said Wirasekara.

BofA Merrill Lynch is acting as lead financial advisor to MDA in connection with the transaction. RBC Capital Markets also provided financial advice to MDA related to this transaction.