Canadian Government Rejects ATK-MDA Deal

[Satellite News – 4-10-08] The Canadian government has rejected the sale of MacDonald Dettwiler and Associates Ltd. (MDA)’s satellite business to Alliant Techsystems Inc. (ATK), Canadian Industry Minister Jim Prentice said in an April 10 e-mail to the companies. 
    “As Minister responsible for the Investment Canada Act, I am writing to advise you that, on the basis of the information contained in your application and other information I have about your investment, I am not satisfied that your investment is likely to be of net benefit to Canada,” the e-mail read.
    Under the Investment Canada Act, Prentice can block any takeover of a Canadian company worth more than 295 million Canadian dollars ($290.2 million) if the deal does not provide ”net benefits” to the economy, such as increased productivity and research and development. This is the first time a foreign takeover has been rejected under the Investment Canada Act, which has governed takeovers since 1985.
    ATK offered to buy MDA’s space business in January, including the Radarsat-2 imaging satellite. The deal has been criticized in Canada by groups concerned that the sale would hand over a key segment of Canada’s aerospace industrial base and technology to a foreign company.
    ATK has 30 days to respond to the notice. Paul Bradley, an investment analyst at Fraser Mackenzie Ltd., said he doesn’t think this means the deal is off the table.
    “I think the difficulty that may lie in front of [ATK], is that the letter that they have received [does not clarify] the points of concern,” Bradley said. “They’re left in the position of trying to discover what it was about the deal that they can change, in order to have that opinion reversed. My understanding from conversations with people is that there has likely been ongoing contact between ATK and the government, and I’m sure they have a good understanding of what those issues are.” 
    The main problem, said Bradley, is that the growth of MDA’s space business cannot be sustained.
    “The reality is that there isn’t sufficient business for the space related activities,” said Bradley. “That’s a business that at best is growing at 4 to 5 percent [a year] over the last five, six, seven years and much of that was around the Radarsat program. I don’t think that there’s another major project of that order that’s sitting in front of them right now.”
    If the Canadian government doesn’t approve the 1.3 billion Canadian dollar ($1.3 billion) deal, Bradley said he is not sure what MDA’s next move would be.
    “The problem is that [MDA] hired an investment banking firm to go out and find potential buyers already,” Bradley said. “I would imagine that that firm would have looked at most of the realistic possibilities. I would suggest there isn’t a domestic Canadian buyer for it. That business is of most value in the hands of a U.S. owner, probably on the logic that the U.S. is the largest market for the things that they do. I can’t see the Canadian government buying it, it’s not really in the business of nationalizing these types of things. I’m not sure there are alternative buyers out there. I would have thought that in looking for buyers for this business, all of the logical candidates would have been approached and given a view early on.”
     Bryce Hallowell, ATK spokesman, would not respond to questions but said that discussions with Canadian government officials were ongoing.
    “The Investment Canada process is a confidential process between ATK and the Government of Canada,” MDA announced in a press release. “As far as MDA is aware, the letter [from Prentice] has been received and discussions between the parties continue.”