By Chuck Black
After a whirlwind romance, which included a truncated public courtship lasting barely a week, Richmond BC based (officially, mostly and for now) MacDonald Dettwiler (MDA) has announced its intent to purchase US based satellite imagery provider DigitalGlobe Inc. (DGI) for about $3.10Bln CDN. It's a deal categorized by some as being "the biggest yet in a fast-consolidating earth-imaging satellite market."
And there's a reason for the public brevity of this courtship.
While the deal provides synergies benefiting existing stockholders and the US government (especially its military and intelligence services), there are entire nations full of people the deal absolutely does not benefit.
Like Canada, for example. Here's what we know so far.
As outlined in the February 24th, 2017 MDA press release, "MDA to Acquire DigitalGlobe, Creating Industry Leader in End-to-End Space Systems, Earth Imagery and Geospatial Solutions," MDA will acquire DGI for $35 US ($46 CDN) per share "in a combination of cash and stock."
The complete transaction provides an equity value of approximately $3.1Bln CDN with an enterprise value of $4.7Bln CDN for DGI, but also includes $1.6Bln CDN in DGI net debt, which will be taken over by MDA.
The transaction has been "unanimously" approved by the boards of directors of both companies and is expected to close in the second half of 2017, contingent on stockholder and regulatory approval.
Those regulatory hoops are perhaps the most interesting given DGI's status as a major subcontractor to the US military and "deep state" intelligence services. As outlined in the press release:
That re-org was discussed in the October 7th, 2016 post, "Iconic MacDonald Dettwiler is Now SSL MDA Holdings, a US Based Company with a Canadian Subsidiary."
It can't be clearer. Canada's MDA, is currently operating "under the guidance and approval" of the US DoD.
Of course, there are synergies and useful business components in the latest deal.
At the very least, the purchase will make it difficult for any company not owned by Delaware incorporated SSL MDA Holdings to effectively bid on the upcoming Worldview Legion Constellation.
As outlined in the February 24th, 2017 Space News post, "In buying DigitalGlobe, MDA ensures SSL will build just-disclosed WorldView Legion constellation," before going public with their plans to merge, "Canada’s MDA Corp. and DigitalGlobe were already working together on a next-generation imaging constellation called WorldView Legion they say will be able to revisit some locations on Earth up to 40 times in a day."
But there are at least one or two business concerns of interest to stakeholders.
First of all, the investment community is concerned over the total amount of net debt created as a result of the transaction.
Net debt to operating earnings before interest, tax, depreciation and amortization (EBITDA) for this deal, often called "net leverage" will work out to approximately 4.1 at the conclusion of the deal, which is substantially higher than the traditional MDA corporate net leverage of around 2.5.
According to MDA CEO Howard Lance, MDA expects to be able to reduce net leverage back down to 3.0 between now and 2020, a period of three years.
Since the net debt to EBITDA ratio is also an estimate of how many years it would take for a company to pay back its debt given no change in conditions, the implication is that MDA is planning only a slow payback of its outstanding debts, and may even be intending to reduce net leverage by growing the company, instead of paying down debts.
And it won't be the last re-org. According to Lance, "'the ultimate parent of DGI" will be incorporated in the US before the end of 2019.
Secondly, as outlined in the February 24th, 2017 Access Wire press release "SHAREHOLDER ALERT: Levi & Korsinsky, LLP Announces an Investigation Concerning Whether the Sale of DigitalGlobe, Inc. to MacDonald Dettwiler and Associates Ltd. is Fair to Shareholders - DGI," at least one US based law firm, NY based Levi & Korsinsky, LLP, has offered to give "shareholders a voice," in the upcoming merger in the form of presently undefined legal action, likely some form of class action lawsuit.
But Levi and Korsinsky lawyers are also exploring or currently engaged in class actions on behalf of shareholders against a variety of companies including Endologix, Inc., Cemtrex, Inc., Inotek Pharmaceuticals Corporation, the Board of Graña y Montero and even FaceBook.
So any reports of potential litigation, especially from this particular firm, should be taken with a grain of salt, at least for now.
Besides, Canadian's don't need a US based "ambulance chaser" to tell us whether or not the deal is good for Canada. As noted above, the deal involces Canadian government security concerns related to the RADARSAT-2 and the upcoming RADARSAT Constellation mission (RCM).
MDA's decision to operate in compliance with US regulations "under the guidance and approval of the US Department of Defense (DoD)," opens up Canadian based programs to US regulations and oversight, even when the contracts are undertaken with the Canadian government using Canadian facilities to support Canadian business and security interests.
In essence, MDA's new corporate structure puts Canadian civilian and military projects at substantial risk when US concerns perceive a need, or even a simple business focused competitive advantage.
Here's a recent example.
As outlined in the March 30th, 2001 Globe and Mail post, "Bilateral spat causing delays, costing millions," RADARSAT-2 was once at the core of a US/ bilateral disagreement relating to its capabilities (which were considered to be equal or better than anything the US was capable of generating at that time) and the potential uses of the satellite data.
Those concerns led the US government to cancel the original NASA launch. A second launch from California was first postponed and then cancelled as well. New components needed to be sourced from non-US based suppliers when the original US suppliers cancelled orders. All told those disruptions and delays led to hundreds of millions of dollars in cost overruns.
Thank goodness MDA, then the prime contractor for RADARSAT-2, was without question, fully and legitimately Canadian owned and operated at the time. Otherwise the program would have completely derailed. RADARSAT-2 was eventually launched on December 14th, 2007, almost seven years late, from Kazakhstan's Baikonur Cosmodrome.
The September 2009 Canadian Space Agency (CSA) document on the "Evaluation of the RADARSAT-2 Major Crown Project," stated explicitly that:
Of course, MDA is no longer fully and legitimately Canadian owned and operated. MDA, is currently operating "under the guidance and approval" of the US DoD.
Company executives have confirmed this.
Rumour has it that the current Federal government under Prime Minister Justin Trudeau is collaborating with US government and MDA executives in the US and Canada to facilitate US re-incorporation and restructuring to take advantage of US military and government opportunities and benefit MDA shareholders.
If so, they are doing so at the expense of MDA's Canadian employees and the Canadian public at large. The government should be held accountable and a public debate should be held.
Otherwise, our Canadian space industry is going to end up either moving to the US, or working in retail and Canada will loose access to the very useful capabilities available through our RADARSAT program.
RADARSAT Constellation, with MDA as the prime contractor, is currently scheduled for launch sometime in 2018. Here's hoping that our latest Canadian satellites don't end up as part of "'the ultimate (US based) parent of DGI" which MDA CEO Lance has promised for 2019.
___________________________________________________________
Chuck Black is the editor of the Commercial Space blog.
After a whirlwind romance, which included a truncated public courtship lasting barely a week, Richmond BC based (officially, mostly and for now) MacDonald Dettwiler (MDA) has announced its intent to purchase US based satellite imagery provider DigitalGlobe Inc. (DGI) for about $3.10Bln CDN. It's a deal categorized by some as being "the biggest yet in a fast-consolidating earth-imaging satellite market."
And there's a reason for the public brevity of this courtship.
 |
| The New York Stock Exchange (NYSE) where MDA shares will soon be publicly traded. Photo c/o History Click. |
While the deal provides synergies benefiting existing stockholders and the US government (especially its military and intelligence services), there are entire nations full of people the deal absolutely does not benefit.
Like Canada, for example. Here's what we know so far.
As outlined in the February 24th, 2017 MDA press release, "MDA to Acquire DigitalGlobe, Creating Industry Leader in End-to-End Space Systems, Earth Imagery and Geospatial Solutions," MDA will acquire DGI for $35 US ($46 CDN) per share "in a combination of cash and stock."
The complete transaction provides an equity value of approximately $3.1Bln CDN with an enterprise value of $4.7Bln CDN for DGI, but also includes $1.6Bln CDN in DGI net debt, which will be taken over by MDA.
The transaction has been "unanimously" approved by the boards of directors of both companies and is expected to close in the second half of 2017, contingent on stockholder and regulatory approval.
Those regulatory hoops are perhaps the most interesting given DGI's status as a major subcontractor to the US military and "deep state" intelligence services. As outlined in the press release:
As part of the transaction, MDA will apply to list its shares on the (New York Stock Exchange) NYSE in addition to (its current listing on) the (Toronto Stock Exchange) TSX. Upon completion of the transaction, the combined Company will continue to execute its US Access Plan strategy.
This will include further reorganization of all or part of the combined Company s corporate and operating structure to ensure that the ultimate parent of DigitalGlobe is incorporated in the US by the end of 2019, subject to customary approvals.Even better, at least according to the press release, "MDA undertook a corporate reorganization in 2016 that included the formation of SSL MDA Holdings, the US. Operating Company of MDA, under the guidance and approval of the US Department of Defense (DoD)," in order to gain access to US military contracts.
That re-org was discussed in the October 7th, 2016 post, "Iconic MacDonald Dettwiler is Now SSL MDA Holdings, a US Based Company with a Canadian Subsidiary."
It can't be clearer. Canada's MDA, is currently operating "under the guidance and approval" of the US DoD.
At the very least, the purchase will make it difficult for any company not owned by Delaware incorporated SSL MDA Holdings to effectively bid on the upcoming Worldview Legion Constellation.
As outlined in the February 24th, 2017 Space News post, "In buying DigitalGlobe, MDA ensures SSL will build just-disclosed WorldView Legion constellation," before going public with their plans to merge, "Canada’s MDA Corp. and DigitalGlobe were already working together on a next-generation imaging constellation called WorldView Legion they say will be able to revisit some locations on Earth up to 40 times in a day."
But there are at least one or two business concerns of interest to stakeholders.
 |
| MDA CEO Lance. Photo c/o Twitter. |
Net debt to operating earnings before interest, tax, depreciation and amortization (EBITDA) for this deal, often called "net leverage" will work out to approximately 4.1 at the conclusion of the deal, which is substantially higher than the traditional MDA corporate net leverage of around 2.5.
According to MDA CEO Howard Lance, MDA expects to be able to reduce net leverage back down to 3.0 between now and 2020, a period of three years.
Since the net debt to EBITDA ratio is also an estimate of how many years it would take for a company to pay back its debt given no change in conditions, the implication is that MDA is planning only a slow payback of its outstanding debts, and may even be intending to reduce net leverage by growing the company, instead of paying down debts.
And it won't be the last re-org. According to Lance, "'the ultimate parent of DGI" will be incorporated in the US before the end of 2019.
Secondly, as outlined in the February 24th, 2017 Access Wire press release "SHAREHOLDER ALERT: Levi & Korsinsky, LLP Announces an Investigation Concerning Whether the Sale of DigitalGlobe, Inc. to MacDonald Dettwiler and Associates Ltd. is Fair to Shareholders - DGI," at least one US based law firm, NY based Levi & Korsinsky, LLP, has offered to give "shareholders a voice," in the upcoming merger in the form of presently undefined legal action, likely some form of class action lawsuit.
But Levi and Korsinsky lawyers are also exploring or currently engaged in class actions on behalf of shareholders against a variety of companies including Endologix, Inc., Cemtrex, Inc., Inotek Pharmaceuticals Corporation, the Board of Graña y Montero and even FaceBook.
So any reports of potential litigation, especially from this particular firm, should be taken with a grain of salt, at least for now.
Besides, Canadian's don't need a US based "ambulance chaser" to tell us whether or not the deal is good for Canada. As noted above, the deal involces Canadian government security concerns related to the RADARSAT-2 and the upcoming RADARSAT Constellation mission (RCM).
MDA's decision to operate in compliance with US regulations "under the guidance and approval of the US Department of Defense (DoD)," opens up Canadian based programs to US regulations and oversight, even when the contracts are undertaken with the Canadian government using Canadian facilities to support Canadian business and security interests.
In essence, MDA's new corporate structure puts Canadian civilian and military projects at substantial risk when US concerns perceive a need, or even a simple business focused competitive advantage.
Here's a recent example.
As outlined in the March 30th, 2001 Globe and Mail post, "Bilateral spat causing delays, costing millions," RADARSAT-2 was once at the core of a US/ bilateral disagreement relating to its capabilities (which were considered to be equal or better than anything the US was capable of generating at that time) and the potential uses of the satellite data.
Those concerns led the US government to cancel the original NASA launch. A second launch from California was first postponed and then cancelled as well. New components needed to be sourced from non-US based suppliers when the original US suppliers cancelled orders. All told those disruptions and delays led to hundreds of millions of dollars in cost overruns.
Thank goodness MDA, then the prime contractor for RADARSAT-2, was without question, fully and legitimately Canadian owned and operated at the time. Otherwise the program would have completely derailed. RADARSAT-2 was eventually launched on December 14th, 2007, almost seven years late, from Kazakhstan's Baikonur Cosmodrome.
 |
| The April 10th, 2008 CBC News post, "Federal government blocks sale of MDA space division." Wanna know why the Federal government under then Prime Minister Stephen Harper blocked the sale of MDA to Alliant Techsystems (ATK) in 2008? That's easy. The Canadian government objected to US efforts to put the kibosh on RADARSAT-2. Screenshot c/o CBC News. |
The September 2009 Canadian Space Agency (CSA) document on the "Evaluation of the RADARSAT-2 Major Crown Project," stated explicitly that:
NASA had (originally) agreed to this "Arrangement for Enhanced Co operation in Space between NASA and CSA," signed in May 1994. This document (the "Clark Evans Agreement") was an agreement in principle to co-operate on several undertakings including RADARSAT 2.
Information in the 2009 RADARSAT-2 Revised Project Brief indicates that NASA informed the CSA in December 1998 that it would not honour the Agreement, citing reasons related to the commercial nature of the satellite and the fact that its enhanced performance would be a major competitor to US industry.The 2009 CSA evaluation also noted that, while the RADARSAT-2 program was "aimed to develop the (Earth observation) EO sector," and used much the same methodology as was used in the 1970's to grow the Canadian commercial satellite communications sector, the various delays to the program gave other competitors time to generate alternative offerings and prevented Canada from dominating the marketplace.
 |
| Trudeau and Harper. Two contrasting Canadian leaders with contradictory ideas of how to best serve Canada. As outlined in the February 27th, 2017 Financial Post article, "Justin Trudeau meets with auto industry as concerns mount over NAFTA," our current PM favors international agreements with open borders and minimal government interference in business decisions. As outlined in the August 27th, 2014 Bloomberg post, "Secret Canada Security Panel Said to Review Foreign Deals," our previous PM favored a more activist approach and rejected the sale of several important Canadian firms to US interests on the basis of national interests. Only time will tell which approach ends up working best. Photos c/o 107.5KoolFM/ Bloomberg. |
Of course, MDA is no longer fully and legitimately Canadian owned and operated. MDA, is currently operating "under the guidance and approval" of the US DoD.
Company executives have confirmed this.
Rumour has it that the current Federal government under Prime Minister Justin Trudeau is collaborating with US government and MDA executives in the US and Canada to facilitate US re-incorporation and restructuring to take advantage of US military and government opportunities and benefit MDA shareholders.
If so, they are doing so at the expense of MDA's Canadian employees and the Canadian public at large. The government should be held accountable and a public debate should be held.
Otherwise, our Canadian space industry is going to end up either moving to the US, or working in retail and Canada will loose access to the very useful capabilities available through our RADARSAT program.
RADARSAT Constellation, with MDA as the prime contractor, is currently scheduled for launch sometime in 2018. Here's hoping that our latest Canadian satellites don't end up as part of "'the ultimate (US based) parent of DGI" which MDA CEO Lance has promised for 2019.
 |
| Chuck Black. |
Chuck Black is the editor of the Commercial Space blog.
The acquisition of MDI is Howard Lance's way of converting MDA to a fully global US satellite systems company. He and the US government should thank All Canadian taxpayers whom supported SPAR Aerospace with $500M annual grants to develop Radarsat and their Space Arm. If Dr.Lapp knew what was taking place today he would roll over in his grave.
ReplyDeleteChuck, you wrote, "Thank goodness MDA, then the prime contractor for RADARSAT-2, was without question, fully and legitimately Canadian owned and operated at the time," about the period of time during which Radarsat-2 was being developed. Note that during much of that period (1995-2001), MDA was in fact a wholly-owned subsidiary of Orbital Sciences (a Virginia company), which bought MDA outright in 1995. MDA was owned by Orbital when they won the Radarsat-2 contract from CSA.
ReplyDeleteYou wrote, "New components needed to be sourced from non-US based suppliers when the original US suppliers cancelled orders." MDA's Radarsat-2 original team included their owner, Orbital Sciences, as the bus provider. The US State Department decided to keep MDA and Orbital from working closely together on this, using the new ITARization of satellites as their rationale. This made the working relationship unworkable, is what I heard at the time. It seemed to be one of the factors that led Orbital to divest itself of MDA in 2000/01 (another factor being that Orbital was running out of cash, due to slow ramp-=up of sales on their new OrbComm and OrbImage businesses, and they needed the cash from the MDA IPO to survive).
Hello Kieran,
ReplyDeleteI stand corrected. MDA was indeed a wholly-owned subsidiary of Orbital Sciences (a Virginia company), which bought MDA outright in 1995 and held it until 2001.
I also agree with your assessment of the then new ITAR regulations, and how they affected the working relationship between MDA and Orbital.
It's worth noting that ITAR is still in force, and could certainly affect upcoming MDA contracts with the Canadian government, such as RADARSAT Constellation.
Anyway, thanks for the corrections. You help add context to sterile government reports I usually reference.
Chuck Black