Earlier today, Viasat announced it reached an agreement to sell the Link 16 Tactical Data Links (TDL) business to L3Harris for $1.96 billion. While we have done several acquisitions in our past, it’s unusual for us to part with one of our businesses. Each time we have, the reason has been because the opportunities we see in satellite networking have been so compelling. TDL has been a fantastic business for us. For over two decades that business has performed incredibly well and helped establish Viasat’s reputation as being able to “punch above our weight” in the face of daunting competition. We’re proud of the impact that Link 16 has had in supporting US national security, and that of our global allies, and are highly appreciative and grateful for our team’s contributions to Viasat’s success. But continued defense consolidation, and a rapidly evolving tactical network environment, deserve more ongoing investment in terrestrial data links than we can support. The L3Harris portfolio of related data links and tactical radios, combined with our TDL business will be very well positioned for sustained growth.
So, after extensive consideration, we decided that selling that business to our long-time data link partner, L3Harris, at the valuation achieved, was the best outcome for Viasat, for our customers, for our shareholders, and for the people in Link 16 TDL that make the business successful. L3Harris has been a major subcontractor and partner on MIDS for over two decades, and the launch partner for our very successful Small Tactical Terminal (STT). The Link 16 TDL business runs at about 35% of our Government Systems revenue, with the rest consisting of satellite services and technology, information and cyber security, and emerging space-centric businesses in earth observation and sensing, space data relay, and alternative PNT (position, navigation, and timing).
Post-sale, our Government Systems annual revenue will be approximately $700 million. Then, post the Inmarsat transaction, we anticipate it to again be over $1 billion annual run rate. This Government Systems portfolio shares extensive synergies with our commercial satellite services and technology areas, and we believe we can achieve faster Government Systems segment growth through greater corporate focus on space and satellite networks going forward.
Also, as a result, we will transform our balance sheet dramatically. We anticipate generating $1.8B in cash, net of taxes, fees, and other transaction costs. Net debt will be reduced by over 70% and our leverage ratio by almost the same amount in a capital markets environment intensely focused on the impact of rising interest rates. It creates an extremely strong balance sheet on a stand-alone basis and enables completing the Inmarsat acquisition with significantly less debt and leverage than otherwise anticipated. Lower cash interest obligations will also improve free cash flow.
The ViaSat-3 constellation and the Inmarsat transaction enable exciting growth opportunities for satellite networking services. While we’ve been most focused on broadband, Inmarsat’s extensive spectrum holdings and L-band satellite fleet also open exciting growth opportunities in narrow band satellite services, and especially in the rapidly emerging satellite direct-to-mobile handset market. The recent partnership between Apple and Globalstar is indicative of the compelling potential of that area – that we believe can benefit from many of the same technology innovations underpinning ViaSat-3. After the Link 16 TDL and Inmarsat transactions are complete, we expect approximately 77% of our corporate-wide revenue to be from recurring services, forming a resilient foundation for growth.
With the impending ViaSat-3 launch, and the Inmarsat transaction progressing, we are at one of the most exciting moments in Viasat’s history. While somewhat bittersweet, the Link 16 TDL transaction with L3Harris will help enable Viasat, and our Link 16 TDL team, both achieve their greatest potential.
You can read more in our press release here: https://news.viasat.com/viasat-to-sell-its-link-16-tactical-data-links-business-to-l3harris-technologies-for-1-96-billion
