A jury is deliberating on the patent infringement suit ViaSat brought against Loral Space & Communications in 2012 and a decision is expected within days, said three sources familiar with the matter. But the suit and a more recent suit ViaSat brought against Loral’s former subsidiary Space Systems Loral (SSL), acquired by MacDonald Dettwiler two years ago, could be sticking points in Loral’s sale, one of the sources and a sector banker speculated.
Loral, whose top institutional holder is MHR Fund, is reportedly for sale as part of the auction of Telesat. Telesat in Canada is the operational entity of Loral, of which the New York-based company owns 63%. Bidders would prefer Loral sell its stake in Telesat, rather than Loral itself, to avoid liability associated with ViaSat’s patent infringement suits, the first source and investment banker said.
According to reports last week, Ontario Teachers’ Pension Plan (OTPP) is the front-runner in an auction for Telesat which could mean a takeout of Loral at $80 per share and the purchase of the remainder of Telesat from Public Sector Pension Investment Board (PSP), which owns 37% of Telesat but controls 67% of voting rights, for a total consideration of about $7 billion.
The banker speculated that in an auction scenario, a buyer might initially express interest in the purchase of Loral but press for another structure to a deal later in the negotiations due to the risk of ViaSat’s litigation.
The sale of Loral’s shares in Telesat leaves Loral with a large tax it avoids if it can sell both entities. A high enough price for Telesat, however, might override Loral or MHR’s reluctance to sell Telesat in a separate transaction, the banker reasoned.
Spokespeople for MHR and Telesat declined comment. Loral, SSL, PSP and OTPP did not respond to phone calls.
ViaSat initiated a law suit against Loral in February 2012, which owned SSL at that time. ViaSat alleged that SSL’s customer Hughes Communications, purchased by EchoStar in 2011, launched a satellite in 2009 that closely resembled one of ViaSat’s, also an SSL customer. In September 2013, ViaSat filed another complaint against SSL that included ongoing matters in the first complaint and three additional patents.
In Loral’s March 2014 10-K filing, the company said that as part of its agreement to sell SSL to MacDonald Dettwiler, it indemnified SSL for “certain litigation costs and litigation damages, subject to certain capped cost-sharing by SSL.” On March 28, 2013, Loral and MacDonald Dettwiler modified the indemnification agreement, Loral stated.
Despite the cap to Loral, Telesat bidders may feel insecure about the specifics of the cap and Loral’s responsibility in ViaSat’s litigation, one of the sources said. He pointed out that Loral and MacDonald Dettwiler have had disputes over the degree to which Loral indemnifies SSL, and according to reports, deferred a decision on the matter until October 25, 2016, or a court ruling or settlement of the initial lawsuit.
The relationship between Telesat owners Loral, MHR and PSP has been characterized as contentious, with rumors of MHR and Loral having quashed the Canadian satellite company’s attempted sale three years ago over price, and reports of PSP’s reluctance to sell early in the current Telesat auction. The unusual ownership structure of Telesat, in which the Canadian minority shareholder holds the majority of voting rights, lends itself to disagreement, the banker said.
