Shares of MacDonald, Dettwiler and Associates Ltd. (TSX:MDA) are up more than 25 per cent on news it’s paying US$875 million to acquire a California satellite manufacturer in what’s being called a transformative move for the Canadian space technology and communications company.
“This is a game changer for MDA, one that meets many of our key strategic objectives in a single move,” MDA president and CEO Friedmann told a conference call with analysts Wednesday.
Friedmann said the addition of Space Systems/Loral Inc. will gives his Vancouver-area company “critical mass’ in the U.S. market while enhancing global opportunities and also greatly diversifying its revenue base.
“SSL is a global leader in commercial communications satellites. Combined with our market-leading strengths in essential information this transaction transforms MDA into a unique global communications and information company with a strong commercial focus.”
MDA shares were up $11.53, or 26 per cent, to $56.17 in morning trading on the Toronto Stock Exchange.
Post acquisition, more than two thirds of MDA’s revenues will come from the commercial market, compared with just under one third at present, Friedmann noted.
As well, the acquisition of the world’s largest and most experienced communications satellite supplier will provide increased geographic diversification of its revenue base.
Prospects for MDA’s revenue from government took a hit earlier this year when the company warned in March that the federal budget didn’t include money needed to advance – as envisaged – Canada’s Radarsat Constellation Mission, a three-satellite project begun in 2005.
MacDonald, Dettwiler is best known as the maker of the robotic arms used on the International Space Station and the now-retired U.S. space shuttles. MDA is also been involved in a variety of businesses that use satellites to collect information from space.
Under the definitive agreement announced late Tuesday, it is buying SS/L from Loral Space & Communications for US$774 million cash for SS/L’s equity and US$101 million for certain real-estate used by the California-based company. Loral Space will receive US$112 million in cash dividends from SS/L.
“Combining the world-recognized communications capabilities of MDA with SS/L creates a powerful space communications leader and enhances the business prospects, both commercial and government, for each of MDA and SS/L,” Michael Targoff, chief executive officer of Loral Space & Communications, said in a statement.
SSL president John Celli, who is remaining with the company, said the combination was a good strategic fit for both.
“Together we will be in an even stronger position to support the growth requirements of both new and existing customers,” Celli said.
SSL is the world’s leading supplier of commercial communications satellites with more geostationary satellite capability in orbit today than any other supplier, having delivered more than 240 satellites over its 50-year history.
“The benefits of this transaction are not in the future,” Friedmann said. “It will provide immediate benefits, including strong accretion for out shareholders.”
Following the acquisition, MDA will have combined annual revenues of $1.9 billion ($1 billion from SSL) and a combined backlog of $2.8 billion ($2 billion SSL) as of March 31.
“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,” MDA said.
“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.”
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