Loral Space & Communications Conference Call to Discuss Sale Agreement of Space Systems/Loral with MDA
Jun 27, 2012 AM EDT
Thomson Reuters StreetEvents Event Transcript
E D I T E D V E R S I O N
LORL - Loral Space & Communications Inc
Loral Space & Communications Conference Call to Discuss Sale Agreement of Space Systems/Loral with MDA
Jun 27, 2012 / 01:00PM GMT
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Corporate Participants
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* Wendy Lewis
Loral Space & Communications Inc - Director of Communications
* Mickey Targoff
Loral Space & Communications Inc - CEO and Vice Chairman of the Board of Directors
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Conference Call Participants
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* Craig Schober
Solis - Analyst
* Andrew Pernick
Bankstone Capital Management - Analyst
* Barney Jones
Highland Capital - Analyst
* Eugene Fox
Cardinal Capital - Analyst
* Blaine Marder
Loeb Associates, Inc. - Analyst
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Presentation
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Operator [1]
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Good day, everyone, and welcome to the Loral Space & Communications Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session, with instructions following at that time.
(Operator Instructions)
As a reminder, today's conference is being recorded. Now I'd like to turn the conference over to Wendy Lewis, Director of Communications. Please go ahead.
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Wendy Lewis, Loral Space & Communications Inc - Director of Communications [2]
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Good morning, everyone. As we proceed with the call today, some of the remarks we make about our future expectations, plans and prospects will be forward-looking statements under the Private Securities Litigation Reform Act of 1995. As you know, actual results may differ materially from those discussed here, as a result of a wide variety of factors and conditions. Please refer to the most recent 10-K and 10-Q forms that we have filed with the Securities and Exchange Commission for information on those factors and conditions. Now, I would like to turn the call over to Michael Targoff, Chief Executive Officer of Loral Space & Communications.
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Mickey Targoff, Loral Space & Communications Inc - CEO and Vice Chairman of the Board of Directors [3]
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Thank you, Wendy, and good morning, everyone. With me today are some of our senior executives including Loral's CFO, Harvey Rein; General Counsel, Avi Katz; and our Treasurer, Richard Mastoloni. Before I discuss the transaction, I want to take a moment to say that our management team worked tirelessly to achieve this result, and we owe them our thanks. Particularly Richard Mastoloni, who ably led our deal team throughout this complicated process.
As you know, last night we announced that we entered an agreement for the sale of Space Systems Loral, our satellite manufacturing subsidiary, to MacDonald, Dettwiler and Associates, a highly-respected Canadian publicly-traded high-tech Company focused on communications, surveillance, and intelligence for both civilian and defense applications. We are very pleased with the terms of the transaction, which will deliver to our shareholders the increased value that we have worked so hard to achieve over the past years. The purpose of the call today is to review and clarify the nature of the transaction, its terms, and its impact on Loral, and take your questions at the end.
As outlined in our press release, the full value of the transaction to Loral is in excess of $1 billion. Excuse me, I have a bit of a cold. This includes $774 million in cash from MDA, a $101 million bank-guaranteed three-year promissory note for the purchase of SS/L real estate, and a cash dividend and other payments from SS/L of approximately $135 million. Now when I use the $135 million, I'm basing that on an assumption that the transaction will close in August as the price increases with time. Thus, the $135 million reflects the cash on the balance sheet at March 31, and approximately $6 million per month of incremental purchase price from March until the presumed transaction closing date, which I've used for these purposes of August. There are other potential adjustments to the final purchase price that are not expected to materially change the result I just described. In addition, Loral will retain primary responsibility for the ViaSat patent litigation.
MDA has fully committed financing from MDA's bank, World Bank of Canada. World Bank of Canada will provide MDA with $1.1 billion of financing in the form of a term loan and revolving credit facility. The committed credit facilities will also provide the combined Company substantial liquidity, as it is expected that approximately $500 million of the revolver will be undrawn at closing.
The acquisition has been approved the Board of Directors of both companies, and the agreement was signed last night. The transaction is expected to close by this Fall, and as I said earlier, perhaps as early as August, once regulatory approvals and other closing conditions are in place. The transaction is a taxable transaction for Loral, and while the amount of that tax that we will be required to pay is still to be finalized, my expectation is that it will be under $3 per share. As we do not currently see any compelling alternatives for the use of the proceeds from the sale, I expect that I will recommend to the Loral Board of Directors that we distribute the after-tax cash proceeds to our shareholders. My rough estimate is that this will come to approximately $26 per share. Remember, this is without the benefit of the land purchase note.
We are very pleased to have negotiated a transaction that helps solidify SS/L's leadership position and provides the Company with long-term stability and new opportunities for growth and diversification going forward. It has been a pleasure for me to negotiate this agreement with MDA. The two companies have very complementary cultures, technology expertise, and market exposure. There is good reason to believe the acquisition will enhance the businesses both in Canada and in the United States. So with that, I will turn the call over to the Operator and take your questions.
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Questions and Answers
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Operator [1]
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(Operator Instructions)
I have a question from [Craig Schober of Solis]. Your line is open.
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Craig Schober, Solis - Analyst [2]
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First, just wanted to express my congratulations to the team there and gratitude. I know that you've worked tirelessly to get this done, so I just wanted to throw that out there first.
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Mickey Targoff, Loral Space & Communications Inc - CEO and Vice Chairman of the Board of Directors [3]
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Thank you.
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Craig Schober, Solis - Analyst [4]
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Secondly, can you just give us on the promissory note, is there an interest rate associated with that?
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Mickey Targoff, Loral Space & Communications Inc - CEO and Vice Chairman of the Board of Directors [5]
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Yes, it's a statutory rate of about 1%, and as I think -- well we structured the promissory note to take advantage of tax benefits we could achieve by delaying the payments over through 2013, 2014 and 2015 and it was more about the tax benefit than it was about financing the transaction or interest rates.
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Craig Schober, Solis - Analyst [6]
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Appreciate that, got it, okay, great. And then on the ViaSat litigation and what's remaining there, what can we sort of assume from a timeline perspective and risk to Loral?
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Mickey Targoff, Loral Space & Communications Inc - CEO and Vice Chairman of the Board of Directors [7]
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Sure. Well, we continue to stick with our disclosure, which says we don't expect a material loss derived from the lawsuit. The lawsuit is still in its early pleading stages. We've done an immense amount of work that reinforces our conclusions, but it's early. And this will be something that Loral will be responsible for with the cooperation of SS/L and MDA and we continue to expect that it's going to take time and hopefully some day we'll be in a position to sit down with ViaSat, both of us being on an informed basis, and try and see if we can abbreviate the time period, but right now it's just too early.
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Craig Schober, Solis - Analyst [8]
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Okay, great and then just lastly, on Telesat, are you guys exploring any further strategic alternatives with respect to that, or are we just hoping the market finally realizes that the multiple on that business should be a whole lot closer to where SES is trading, and not anything else?
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Mickey Targoff, Loral Space & Communications Inc - CEO and Vice Chairman of the Board of Directors [9]
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Well two parts to your question. The first part is, we just generally don't comment about that unless we have something to say, and if we have something to say we say it. So then no comment about the first part of the question. And I think one of the effects of the transaction that we announced last night is that the clarity of what the Company is, and how it should be valued, should be more apparent, so we'll see.
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Craig Schober, Solis - Analyst [10]
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Okay, guys, thanks again.
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Operator [11]
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Thank you.
(Operator Instructions)
Our next question is from [Andrew Pernick of Bankstone Capital Management]. Your line is open.
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Andrew Pernick, Bankstone Capital Management - Analyst [12]
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Just one quick question. On the pension liabilities, were they all at the SS/L subsidiary/ and are they traveling along to the buyer?
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Mickey Targoff, Loral Space & Communications Inc - CEO and Vice Chairman of the Board of Directors [13]
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No, yes. The part that was SS/L went to the buyer, yes. It was a combined corporate SS/L, but the SS/L portion is traveling more.
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Andrew Pernick, Bankstone Capital Management - Analyst [14]
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Okay, can you quantify what that portion is?
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Mickey Targoff, Loral Space & Communications Inc - CEO and Vice Chairman of the Board of Directors [15]
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It's about 90% of the disclosed amount.
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Andrew Pernick, Bankstone Capital Management - Analyst [16]
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Okay, thank you very much. That was my only question.
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Mickey Targoff, Loral Space & Communications Inc - CEO and Vice Chairman of the Board of Directors [17]
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Okay.
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Operator [18]
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Thank you. Our next question is from [Barney Jones of Highland Capital]. Your line is open.
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Barney Jones, Highland Capital - Analyst [19]
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Congrats on the transaction. My one question is, is there any retained exposure from Intelsat 19 that's been quantified or that you would estimate?
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Mickey Targoff, Loral Space & Communications Inc - CEO and Vice Chairman of the Board of Directors [20]
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Yes. We're going to, as you know, the exposure is with respect to receipt of orbitals which is about $18 million over time. And we've -- the contract provides for provisions for us to be to have some responsibility for that, and we're not going to provide that level of detail.
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Barney Jones, Highland Capital - Analyst [21]
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Okay, but it would be fair that $18 million would be a conservative kind of max exposure?
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Mickey Targoff, Loral Space & Communications Inc - CEO and Vice Chairman of the Board of Directors [22]
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It would be very fair to be a conservative max exposure, yes.
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Barney Jones, Highland Capital - Analyst [23]
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Okay, thank you.
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Operator [24]
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Thank you. Our next question is from Eugene Fox of Cardinal Capital. Your line is open.
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Eugene Fox, Cardinal Capital - Analyst [25]
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Congratulations on the transaction.
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Mickey Targoff, Loral Space & Communications Inc - CEO and Vice Chairman of the Board of Directors [26]
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Thank you.
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Eugene Fox, Cardinal Capital - Analyst [27]
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Good price, well structured. With respect to the note, the three year note and your comment earlier, should we assume that there will be no taxes associated with the repayment of that three years from now?
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Mickey Targoff, Loral Space & Communications Inc - CEO and Vice Chairman of the Board of Directors [28]
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Well it's not three years from now. The payments are three payments over three years, and the whole reason to strike that way was that we would have NOLs available to offset the income, so there would be no Loral tax on those receipts.
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Eugene Fox, Cardinal Capital - Analyst [29]
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Okay. That's good. Thank you so much.
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Mickey Targoff, Loral Space & Communications Inc - CEO and Vice Chairman of the Board of Directors [30]
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You're welcome.
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Operator [31]
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Thank you. Our next question is from Blaine Marder of Loeb Capital Management. Your line is open.
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Blaine Marder, Loeb Associates, Inc. - Analyst [32]
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I'm sorry, you said you thought the tax implications of the transaction net of NOLs would be under $3 a share?
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Mickey Targoff, Loral Space & Communications Inc - CEO and Vice Chairman of the Board of Directors [33]
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Yes.
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Blaine Marder, Loeb Associates, Inc. - Analyst [34]
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Okay, and then if you were to pay a $26 special dividend, I'd assume that would also be taxable, or might that be deemed a return of capital?
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Mickey Targoff, Loral Space & Communications Inc - CEO and Vice Chairman of the Board of Directors [35]
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Well, the other $3 a share was not the shareholder level. That was at the Loral level.
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Blaine Marder, Loeb Associates, Inc. - Analyst [36]
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Understood.
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Mickey Targoff, Loral Space & Communications Inc - CEO and Vice Chairman of the Board of Directors [37]
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The dividend, assuming there is a dividend of $26, the purpose of your question, each shareholder would have basis, depending upon some complicated structure, things that we're going to work out over time. Some of it will be income. Some of it will be reduction of basis, I hope, but I think it's a little premature to get to that level of detail.
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Blaine Marder, Loeb Associates, Inc. - Analyst [38]
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Okay, got it. Thank you.
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Operator [39]
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Thank you. There are no further questions at this time. I'd like to turn the call over to Mr. Michael Targoff for any closing remarks.
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Mickey Targoff, Loral Space & Communications Inc - CEO and Vice Chairman of the Board of Directors [40]
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Well, thank you all for your participation, and I think that we're all very pleased and rightfully so. And it's a good result for the Company, a good result for the business of SS/L and for MacDonald Dettwiler, and a good result for the shareholders, and I think we all should be quite satisfied. Thanks for your involvement with the Company and we look forward to continuing to touch base.
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Operator [41]
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Ladies and gentlemen, thank you for your participation in today's conference. This concludes the program. You may now disconnect. Have a wonderful day.
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