Loral Talks with Telesat Suitor Continue Even as Transaction Deadline Passes

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PONTE VEDRA, Florida — Loral Space and Communications, which for months has been trying to sell itself along with its principle asset, a majority stake in satellite fleet operator Telesat, on Aug. 6 said it is continuing to explore a transaction with an unnamed high bidder despite the expiration of a deadline set by Telesat co-owner PSP Investments.

New York-based Loral also said it will appeal, at a cost to Loral of up to $400,000 per month, any adverse judgment in the patent-infringement lawsuit brought by satellite broadband provider ViaSat Inc., whose initial win of a $283 million judgment was reviewed Aug. 7 by a U.S. District Court in California.

The two apparently unrelated matters are tied insofar as any change in control in the ownership of Loral would affect its liability in the lawsuit, which was originally brought against Loral and its satellite manufacturing arm, Space Systems/Loral (SSL), now owned by MDA Corp. of Canada. As a condition of the November 2012 sale of SSL of Palo Alto, California, Loral agreed to take responsibility for ViaSat-related damages, with the stipulation that a change of Loral’s ownership would cap its liability at $200 million.

In an Aug. 6 filing with the U.S. Securities and Exchange Commission (SEC), Loral said the $200 million cap on its liability includes any damages stemming from a second ViaSat lawsuit, this one against SSL directly and not Loral, and also include any injunction-related costs.

Carlsbad, California-based ViaSat, in addition to seeking confirmation of the April award, is seeking pre-award interest of $41.1 million and an injunction against Loral and SSL to prevent further work on satellites using ViaSat patents, including patents that were not at issue in the original court case.

In the SEC filing, Loral reiterates that it will appeal any adverse court ruling and that any indemnification owed to SSL against damages stemming from ViaSat’s original lawsuit would not be due until the appeals were exhausted. In the meantime, Loral said, it has agreed with SSL that the two parties will divide equally the cost of an appeals bond that would need to be paid pending the appeal. Loral estimates that the appeals bond costs could be as much as $800,000 per month.

SSL’s owner, MDA of Richmond, British Columbia, has said SSL’s continued work on Ka-band consumer broadband satellites has proceeded only after being scrubbed of any potential ViaSat liability. SSL is notably working on a satellite called EchoStar 19/Jupiter 2 for ViaSat’s principal U.S. competitor, Hughes Network Systems of Germantown, Maryland.

It was SSL’s construction of the EchoStar 17/Jupiter 1 satellite, which ViaSat said was a copy of its patent-protected ViaSat-1 spacecraft, that led to the original lawsuit.

Meanwhile, Loral has a 62.8 percent economic ownership stake in Ottawa, Canada-based Telesat, but only a 32.7 percent voting interest. Most of the remaining economic and voting interest is held by PSP Investments, a Canadian pension fund.

Loral and PSP have disagreed in the past about the terms and timing of a Telesat sale. Following its sale of SSL, Loral turned its full attention to a Telesat transaction. The company said it spent $1.6 million in the six months ending June 30 on exploring a strategic transaction, compared with $371,000 a year ago.

Loral has said the transaction likely will be one in which it sells itself to a third party rather than selling its Telesat stake directly. Any such sale would require a new Telesat shareholder agreement between PSP and Loral’s new owner, giving PSP substantial leverage over the timing of the deal.

Loral said its latest attempt to sell itself turned up an apparently acceptable high-bid offer but that negotiations between Loral, the bidder and PSP failed to conclude before a PSP-imposed deadline.

“We are, however, continuing to explore ways to achieve a definitive transaction with PSP and the potential acquirer,” Loral said.