Loral Shareholders Protest $300 Million MHR Investment

In mid-Oct., Loral said MHR would buy $300 million of convertible preferred stock, and that Loral would use the proceeds to pursue “both internal and external growth opportunities… including strategic transactions or alliances.” The money could be used by Loral’s FSS or manufacturing arms, CEO Michael Targoff said at the time. “An equity investment of this size is an extraordinary achievement for Loral,” he said. The firm emerged from bankruptcy this time last year (CD Nov 23/05 p3) and returned to the U.S. fixed satellite services market in March (CD March 27 p7).

Loral changed its tack on the MHR deal a few days after stockholders attacked what some called a “sweetheart deal” shaped by MHR’s ties to Loral management. The nonexecutive chmn. of Loral’s board is MHR’s president and co-founder, and 2 other Loral board members are MHR principals. Loral said it asked MHR to consider “an alternative” transaction that would “include the participation of all interested shareholders.” An MHR response is “forthcoming,” Loral officials said in late Oct. The fund’s response hadn’t been received by the meeting time Tues., Targoff said.

Separately, 5% Loral owner Highland Capital proposed a similar, but more competitive $300 million investment to replace the MHR plan. “Highland Capital is willing to underwrite a $300 million convertible perpetual preferred stock transaction on similar terms that are more favorable to Loral, including but not limited to, a lower coupon rate and/or a higher conversion price than proposed in the MHR transaction,” it said in a letter to Loral’s board. The MHR transaction’s terms “were not negotiated on an arm’s length basis, are not fair to or in the best interest of Loral’s stockholders as a whole, and unfairly benefit MHR at the cost of Loral’s other stockholders,” Highland said.

Investors have waited patiently to capitalize on Loral’s post-bankruptcy potential and eagerly await a return on their dollars, said investor Murray Capital in a separate letter to Loral’s board. “Now that we many be on the cusp of a bright future, we find the board entering into a transaction that will effectively snatch a great deal of our upside away from us and deliver it to MHR Fund Management,” the letter said. Loral’s fixed satellite services (FSS) business, Skynet, is seen by many as a potential target in today’s consolidating FSS industry. With 5 satellites in orbit and one being built, Skynet is much smaller than Intelsat, SES Global and other commercial FSS giants.

Loral Mon. filed a $500 mixed shelf registration statement at the SEC. Under the registration, the firm periodically may sell up to $500 million in debt, common stock, preferred stock, warrants and rights, with size, price and terms determined at time of sale. Proceeds will go to pay debt and for expansion and working capital, Loral said in the SEC filing.

Loral gave Q3 results at the Tues. shareholder meeting. Loral Q3 revenue rose 42% to $227 million, compared to $160 million last year, officials said. Revenue for the first 9 months of the year rose 38%, to $593 million, they said. Rising demand for satellites -- bringing the manufacturing industry back “to historic order levels” -- was the spur for much of that growth, officials said. The contract for TerreStar 2 brought Space Systems/Loral’s 2006 award total to 5 satellites. Connexion by Boeing’s Q3 demise meant a $10 million benefit during the quarter, but also cancellation of $37 million in Skynet backlog, officials said. Loral reported a year-to-date net loss of $26.1 million, an improvement from a $72.8 million loss a year earlier.