In late June, Loral reached an agreement with MDA to sell off its SS/L subsidiary for $875 million. MDA’s winning bid for SS/L trumped that of larger vendors, including Lockheed Martin, Orbital Sciences, Astrium and Thales Alenia Space.

   The acquisition potentially transforms MDA into a significant commercial communications entity as it adds SS/L a top global provider of commercial communications satellites to MDA’s portfolio and provides the company with critical mass in the U.S. market. Following the acquisition, MDA said it would have combined annual revenues of $1.9 billion as of the 2011 calendar year and a combined backlog of $2.8 billion as of March 31, 2012. SS/L will retain its brand name and management team.

   The CFIUS process stems from the Canadian government’s national security concerns in 2008 when it blocked the $1.36 billion sale of MDA’s own satellite arm to U.S. satellite manufacturer Alliant Techsystems (ATK) – the first time Canada used the powers of the Investment Canada Act to block a foreign acquisition of Canadian assets. Government officials at the time said they feared that the sale of the MDA unit would have led to the loss of crucial technology and hampered its satellite surveillance capabilities.

   With the CFIUS confirmation, MDA’s takeover of SS/L moves one step closer to completion, though a much more difficult hurdle remains. On Sept. 12 Loral and MDA each received a second request for information from the U.S. Department of Justice in connection with the SS/L purchase. MDA said the Department of Justice is reviewing the transaction as part of the regulatory process under the Hart-Scott-Rodino Antitrust Improvements Act of 1976 and that the company would “continue to cooperate fully with the Department of Justice as it conducts its review of the proposed transaction in order to respond to any questions the Department may have.”

   RBC Capital Markets Analyst Steve Arthur told Satellite News that the regulator’s second request for information prompted the brokerage firm to lower its rating on MDA. “We believe both sides are motivated to close on a transaction, but the Department of Justice delay adds great uncertainty,” said Arthur.
   Cormark analyst Richard Tse echoed Arthur’s sentiment that the Department of Justice’s request adds risks for the potential deal. “At the very least, it potentially pushes out the timing of the closing of the transaction into 2013, as we believe the request will require some time on MDA’s part to fully understand the nature of the request and gather the necessary information for review,” said Tse.

   If the transaction does clear, the results could reap huge benefits for MDA. According to Futron’s Satellite Orders Report, SS/L has been awarded more commercial satellite contracts worldwide than any other company since 2005. Its full-year revenues for 2011 were $1.1 billion, with pro-forma operating EBITDA of $153 million. In a analysis report of the transaction published in July, Raymond James Analyst Chris Quilty called MDA’s move, “bold and potentially transformative.”

   “Taken at face value, the purchase price represents a multiple of 6.4, trailing EBITDA,” said Quilty. “But after adjustments such as tax step-up, pension liability and orbital receivables, the purchase price could more charitably be estimated at a multiple of 4.4, trailing EBITDA.”

MDA President and CEO Daniel Friedmann said the acquisition is expected to provide global opportunities for his company’s future growth in new markets fueled by strong consumer communications needs.

   “This is a game changing transaction for our company,” said Friedmann. “With one move, we are bringing together two market leaders to create a unique global communications and information company with a strong commercial focus. Post-acquisition, more than two-thirds of MDA’s total revenues will come from the commercial market.”

SS/L also represents an opportunity for MDA to expand into the United States. The company’s assets include a U.S.-based workforce of 3,200 employees and more than one million square feet of facilities.

    “SS/L’s business is fundamentally driven by the worldwide demand for television, digital audio, broadband Internet, mobile communications, and voice telephony,” Friedmann added. “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.”

   However, Quilty added that, from a strategic perspective, the acquisition was imperative for MDA. “MDA had become overly dependent on the Canadian government and faced minimal growth prospects in its robotics, radar satellite, and optical satellite markets,” said Quilty. “The acquisition of SS/L instantly establishes MDA as the world’s leading provider of high-power commercial communications satellites and increases MDA’s exposure to new customers and the all-important.”