Amended rules could send Telesat out of Canadian orbit

Telesat could be the latest Ottawa technology company to get foreign ownership.
 

 
Chief executive Dan Goldberg kicked off the latest earnings conference call by telling analysts that the federal government has lifted rules limiting foreign ownership of the big satellite operator. Telesat has substantial debt from the $3.2-billion deal that expanded the company in 2007. With interest rates at record low levels, the opportunity to raise new capital is tempting.
 
Analysts wanted to know what Telesat will have to do if a new financing leads to a change of control. Goldberg said Investment Canada would still review the deal. "We (would) have to demonstrate that the change in ownership becoming foreign controlled, that at the end of the day there was a net benefit for Canada."
 
Harvard-trained Goldberg led the complicated restructuring of Telesat in 2007 that improved its competitive position in a global market dominated by much bigger operators in Europe and the U.S.
 
Loral, a New York satellite company, put its satellites and investments into the Telesat fleet and got a 64-per-cent stake in Telesat profits. Canadian pension funds put in financing and kept two-thirds of the Telesat board seats to comply with the now defunct rules. The arrangement looked like a recipe for trouble, but Goldberg, a skilled expert in the global industry, said the marriage has gone smoothly.
 
Loral chief executive Mickey Targoff certainly likes the deal -- almost half of his potential bonus this year will be driven by Telesat financial performance. But Telesat has a hefty debt load in U.S. dollars. Depending on exchange rates, that can have a dramatic impact on results.
 
Switching to U.S. dollar reporting and reducing the debt at lower interest rates might prove attractive. But it will probably mean Telesat will join a long list of Ottawa companies, including the Nortel operating businesses, Tundra, Newbridge, Third Brigade and Cognos, that are no longer Canadian-controlled.
 
Telesat sales rose just two per cent in the latest quarter to $205 million, partly because because of the loss of a contract serving General Motors dealerships with training and information programs.
 
Telesat said it lost the business to Internet operators, not to another satellite operator. Telesat lost $72 million in the quarter because of foreign exchange movements affecting its U.S. debt. It turned a profit of $182 million a year earlier.
 
Meanwhile, another satellite company with an Ottawa profile faces some significant challenges. U.S.-based TerreStar launched a new communications satellite a year ago to serve remote customers and provide backup service to global wireless companies facing increased congestion on their networks. But negotiations have not gone well and TerreStar has missed some key deadlines for financing the operation.
 
The stock plunged on the grim warning.
 
Huawei Technologies continues to get the brush-off in its efforts to crack the U.S. market. The booming Chinese communication equipment maker reportedly bid more than $100 million above the selling prices for the wireless networking business of Motorola and 2Wire Inc., a software maker.
 



Bloomberg News said sellers doubted that Huawei would win U.S. government business over fears about possible links with the Chinese government. The U.S. Congress effectively blocked a Huawei bid for 3Com in 2008 by launching an investigation into security concerns.
 
Nokia Siemens Networks won the Motorola business with a $1.2-billion bid, but reportedly let Motorola keep patents and some other assets to make up the gap with the Huawei offer. A British set-top equipment maker, Pace PLC, landed 2Wire with a $475-million bid.
 
Huawei came close to bidding on some Nortel Networks assets earlier this year, but backed off. Even with political opposition, Huawei, which has a growing Ottawa research operation, continues to take market share. The latest target could be the DragonWave franchise at Clearwire, the new alternative U.S. carrier. Reports say that Clearwire in the future could buy Huawei gear that uses different technology for the DragonWave portion of the business.
 
Briefs
 
Pacific Safety Products, the troubled Arnprior maker of bulletproof vests and other protective gear, is trying to raise $1 million to save the company. Stonehouse Management Capital, which helped block an earlier sale attempt and which owns 9.9 per cent of PSP, plans to buy $350,000 in securities. ... Trend Micro, the Japanese network security player that bought Third Brigade a year ago, is having a rough patch. Sales in the June quarter were down 3.5 per cent from a year ago and profits slid 21 per cent. ... QNX Software has appointed Derek Kuhn as vice-president of sales and marketing. He previously worked at Alcatel-Lucent as vice-president of emerging technologies. He is a Carleton University graduate. ... PharmaGap, an Ottawa company developing a potential cancer treatment, said trials at the National Research Council show that rats tolerate the treatment at dose levels sufficient to kill cancer cells.
 
More testing is planned to determine effective dose levels.
 
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