Loral Buying Telesat

CFRA newsradio read the Wall Street Journal this morning and announced Loral and PSP were buying Telesat from BCE. Telesat was the first domestic satellite operator (Anik A, pictured below, was the first satellite).

Here’s the scoop from WSJ (subscription):

Loral Space & Communications Inc., in partnership with a Canadian pension fund, is expected today to announce a deal to acquire the Telesat satellite unit of Canada’s BCE Inc. for more than three billion Canadian dollars (US$2.59 billion), according to people familiar with the details.

As part of the transaction, Loral will contribute cash as well as all of its own satellite assets to form a new company, based in Canada, that will own and operate the combined satellite fleet, these people said. The structure is intended to create the fourth-largest global commercial fixed-satellite operator, with 11 satellites in orbit and four more under construction, while complying with Canadian laws restricting foreign ownership of such firms.

A Loral spokesman declined to comment, as did a spokesman for Telesat. It was unclear which pension fund was participating in the deal. The combined company would have an order backlog of more than C$5 billion for leasing in-orbit capacity to customers who use it to transmit video and data for applications ranging from television service to Internet connections. For the first nine months of this year, Telesat reported revenue of C$351 million.

By combining Telesat’s existing coverage over North America with Loral’s international business and longstanding ties to large customers and other operators, the new entity would be designed to compete more effectively against global satellite behemoths such as Intelsat Ltd. and SES Global SA of Luxembourg.

A deal would pave the way for BCE to follow its strategic plan to exit the satellite business. And the pension fund will have two-thirds of the voting rights in the new entity, the people familiar with the matter said. But Loral, which also had been toying with the idea of bailing out of what is known as the satellite-services sector, is expected to have control over two-thirds of the economic assets, these people said. Loral’s satellite-manufacturing business won’t be affected.

Consolidation among smaller satellite operators has picked up momentum following a spate of larger acquisitions over the past few years. Daniel Goldberg, who became president and chief executive of Telesat in September, will become chief executive of the newly formed company. Since the summer, BCE has been weighing an initial public offering of the unit in the U.S. and also inviting alternative bids from private-equity groups and others. Loral took part in the auction despite comments from Chief Executive Michael Targoff earlier this year that the New York company was considering exiting the segment because its fleet was too small to compete against larger global rivals.

Private-equity groups have invested nearly US$10 billion in various satellite-related acquisitions and mergers over the past few years, pledging to reduce capital expenditures and improve profitability. But the latest deal signals that the next industry trend may feature consolidation among regional and second-tier and third-tier operators, hoping to gain size and coverage to compete with global rivals.