Telesat and Loral could be combined into one public company

As Telesat was holding its quarterly results call with investors, Loral Space and Communications, one of two principal shareholders in the company, announced the possible combination of Loral and Telesat. It's not the first time this has been suggested, but this time Loral said that they were in "advanced discussions" with the other principal shareholder in Telesat, the Canadian Public Sector Pension Investment Board. Specifically Michael Targoff, Vice Chairman of Loral's Board of Directors, said "in an effort to maximize shareholder value, we have for some time been exploring, and are now in advanced discussions with our Canadian co‑owner in Telesat, Public Sector Pension Investment Board ('PSP'), regarding the combination of Loral and Telesat into one public company." One reason for the renewed interest was the forthcoming cash windfall Telesat will get from its share of the repurposing of C-band Spectrum as approved by the US Federal Communications Commission in its Report and Order on Expanding Flexible use of the 3.7 to 4.2 GHz Band. Telesat is in line to receive up to US$344.4 million. The FCC decision, the upcoming announcement later this summer on how it will proceed with its LEO Satellite Constellation and the current state of the economy have apparently led to a decision that Telesat and Loral combining would be a stronger entity going forward. Mr. Targoff further stated that "given the advanced state of the discussions regarding the combination transaction, it is now appropriate to pay to our shareholders a significant portion of the $243 million cash distribution that we previously received from Telesat. It is our intention to request that the Board declare an additional distribution to our shareholders in coordination with signing definitive agreements for the combination transaction." That cash Telesat provided Loral will be shared through a special US$5.50 dividend to shareholders of record at the close of business on May 14, 2020. The news of the Loral announcement came towards the end of Telesat's call with investors and one institutional investor asked the question of what the implications this would mean, including from a credit or capital structure perspective. Telesat CEO Dan Goldberg, perhaps caught unawares, or just downplaying the news said, "for sure when when we have material developments, we disclose them, and we and Loral have provided disclosure around this topic before, and I should say, over some number of years at this point. I think at this point all we can say, is that something that continues to be explored. But until such time that, you know, there's a development that's worthy of updating our disclosure, really I don't have anything more to say about it at this time. Off the top of my own head, were that to happen, and I don't know whether it would or not, I don't believe this would have any credit implications." With respect to the earnings, Telesat reported that for the quarter ended March 31, 2020, consolidated revenue of $209 million, a decrease of 6% ($14 million) compared to the same period in 2019. Commenting on the results, Goldberg said "our first quarter results were consistent with our expectations at the outset of the year, notwithstanding the COVID-19 pandemic. Although we expect to face some headwinds from the pandemic throughout the balance of this year and potentially beyond, we believe that it will be principally from customers serving the aeronautical and maritime markets, which we estimate (in the aggregate) represented roughly just 10% of our total 2019 revenue. Our focus at this time is to support our employees and customers through the pandemic, ensuring that our staff is healthy and that we continue to reliably and securely deliver the mission critical services we provide. I am pleased with and grateful for the tremendous work the Telesat team is doing in this regard and, moreover, in the progress we continue to make on our signature growth initiative, the development of our planned revolutionary Low Earth Orbit (LEO) satellite constellation." Goldberg also reiterated that they are very bullish on the future of their LEO Satellite Constellation. For the full Telesat quarterly results, click here (PDF).