The Canadian government’s March 3 declaration that it intends to loosen foreign ownership restrictions on domestic telecommunications companies is a positive development that should help increase the value of satellite operator Telesat by giving its majority owners more say in the company’s strategic direction.
Telesat is in the unusual position of being majority-owned by a U.S. company, Loral Space and Communications Ltd., but controlled by its Canadian shareholders. This arrangement hasn’t exactly served Telesat poorly: It is the world’s fourth-largest satellite operator in terms of revenue and the biggest to be based in North America. Revenue and backlog both rose by double digits in 2009, with big customers like Dish Network and Bell TV helping to offset the effects of a capacity glut in Telesat’s primary North American market.
But a decision-making structure that gives minority investors veto power over those with the most money at stake — particularly if that power comes by virtue of a government policy intended to protect national strategic or domestic industrial interests — is not the most conducive to maximizing shareholder value. The existing foreign ownership restrictions likely would impose a price penalty on Telesat’s current owners in any future initial public offering of stock, which they might want to conduct to either cash in on their investment or raise the capital needed for fleet expansion.
It’s no wonder, then, that Telesat Chief Executive Daniel S. Goldberg applauded the government’s shift, even if his position on the importance of fleet expansion is somewhat vague. In a statement responding to Ottawa’s announcement, Mr. Goldberg said the new rules will facilitate fleet expansion, which he characterized as necessary because of the advantages offered by size. However, in a conference call with analysts at about the same time, he said Telesat has “no strategic imperative” to expand.
For the Canadian government, meanwhile, there are ways to preserve and protect its interests in any Telesat ownership change that results from its new policy. After all, the United States, which is as dependent on commercial satellite communications as anybody, attached conditions to the sale of the large U.S.-based satellite operators — one was sold to a European company; the other relocated its headquarters first to Bermuda and then to Luxembourg — to ensure that the country will continue to have access to this vital resource. Both of those operators — SES Americom and Intelsat — continue to maintain a large U.S. presence.
Similar conditions need not be the least bit onerous to Telesat, as Intelsat and SES Americom can attest. In fact, it is difficult to see a downside for Telesat, or anyone else, for that matter, in the Canadian government’s decision. But there is plenty of upside for Telesat and its shareholders, particularly if the company ultimately decides that bigger is in fact better.
