Loral Space & Communications, the largest shareholder in Telesat, has posted a slide deck for shareholders with an update on the integration transaction ahead of an expected IPO this quarter.
Loral is already a public company and by its own words, the “current two-tier structure impairs value.”
Loral states that “Loral Stockholders hold stock in Loral. Loral, in turn, is the majority economic owner of Telesat, but does not have majority governance rights (a two-tier structure in which the Loral stock price is potentially discounted for being in a holding company without majority control). PSP Investments (The Canadian Public Sector Pension Investment Board) owns equity directly in Telesat. The differing ownership levels have, in the past, created a misalignment of interests between Loral Stockholders and PSP Investments that added to the complexity of financing and completing strategic transactions.”
To remedy this problem, a new Canadian public company will be created, Telesat Corporation. In the new company “the direct and indirect holders of Telesat (i.e., the Loral Stockholders, PSP Investments and certain members of Telesat Management) will hold their equity in a newly formed Canadian public company, Telesat Corporation, in the same proportion as their current equity ownership in Telesat.”
“To provide Loral Stockholders who have a ‘built-in gain’ on their Loral stock with the opportunity to participate in the Transaction on a U.S. tax-deferred basis, Loral Stockholders may alternatively elect to receive limited partnership units (‘LP Units’) in a Canadian partnership, Telesat Partnership (instead of shares of Telesat Corporation). After a six-month lockup period following consummation of the Transaction, those LP Units may be exchanged for Telesat Corporation Shares at the election of the holder.”
The proposed initial board of directors of Telesat Corporation will consist of:
- Ms. Mélanie Bernier
- Mr. Michael Boychuk
- Mr. Jason A. Caloras
- Mr. Dick Fadden
- Mr. Daniel Goldberg
- Mr. Henry Intven
- Dr. Mark H. Rachesky
- Mr. Guthrie Stewart
- Mr. Michael B. Targoff
- Individual to be named
Biographies of the board are available in the deck below.
Loral outlined the following additional reasons shareholders should approve the transaction.
- Better align the interests of the direct and indirect equity holders in Telesat.
- Result in Loral Stockholders receiving the benefit of holding their interests in Telesat Corporation directly, rather than holding their interests in Telesat indirectly through Loral.
- Facilitate access to the public equity markets for Telesat Corporation as a possible means to fund Telesat Lightspeed, which will require an estimated capital investment of approximately $5 billion.
- Facilitate potential future strategic transactions that could involve the shares of Telesat Corporation.
- Maintain the Canadian character of Telesat to preserve Canadian government support.
- Help improve liquidity over time, including by potentially attracting the interest of Canadian institutional investors.
- Be more favourable to the Loral Stockholders as compared to alternative transaction structures, including those that have been previously pursued.
- Avoid the substantial tax liabilities that would otherwise be incurred upon a sale of Loral’s interests in Telesat.
- Result in Telesat receiving certain important covenant relief under the terms of Telesat’s existing debt securities, due to Telesat being beneficially owned by a single public company, Telesat Corporation.