The difficult relationship between the owners of Telesat Holdings Inc. may finally be resolved by a huge takeover bid from one of Canada's biggest pension funds.
The satellite operator drew interest from two of Canada's largest pension funds, Ontario Teachers' Pension Plan and Canada Pension Plan Investment Board (CPPIB), said a person familiar with the situation.
Now, Bloomberg reports that Teachers appears to be the one that is closest to finding a way to get its hands on Telesat at a combined price of about $7-billion (U.S.), including debt.
Pension funds covet the long-term cash flow from the Canadian satellite operator, which has a network of satellites that is difficult to replicate. The problem has been how to get to Telesat, which has a complicated ownership structure that makes a deal difficult.
Telesat is jointly owned by publicly-traded Loral Space & Communications Inc. and Public Sector Pension Investment Board (PSP), a Canadian pension fund. They combined to buy the business from BCE in 2006. However, having a U.S.-based publicly traded company and a Canadian pension plan as joint owners has created a difficult situation.
The satellite operator has been shopped before as PSP has been looking for a way out, but it was difficult for Loral to sell because of tax consequences. (PSP doesn't pay taxes, because of of its status as a pension fund. Loral would face a capital gains hit if it sold its shares). And because of Canadian-ownership laws, PSP owns a minority stake but has a majority of the voting rights.
In the summer of 2012, PSP exercised its right to ask for an initial public offering of Telesat. Loral didn't like the idea, publicly citing "tax inefficiencies." In early 2013, Loral said that process had been stopped. The asset went back on the block for a private sale.
Now, it appears that Teachers may have a way to solve the problem by bidding for Loral in its entirety, as well as buying the PSP stake.
Another Canadian pension fund, CPPIB, also looked at Telesat but a person familiar with the process told Streetwise that the pension manager has since backed away.