Sunday, May 27, 2012

Federal Government Says "Yippee Ki Yay" to MDA

Bruce Willis in Die Hard.
Much like Bruce Willis in the 1988 movie Die Hard, the Federal government seems to have responded to an escalating series of public comments from BC based RADARSAT Constellation (RCM) prime contractor MacDonald Dettwiler (MDA), with an indirect suggestion that actions speak louder than worlds.

Of course, that's not the official story story behind the May 25th, 2012 Canadian Press article "Foreign takeover review threshold rising to $1B." According to the article:
The federal government is raising the monetary threshold for a review of a foreign takeover of a Canadian company to $1 billion from $330 million over a four-year period.

Ottawa is also creating a formal mediation process under the Investment Canada Act that will offer a voluntary means of resolving disputes when the minister believes a foreign buyer has failed to live up to its obligations.
Alan Rickman as Hans Gruber. 
But the government statement came only days after the May 22nd, 2012 Wall Street Journal article "Uncertainty Over MDA Project Highlights Risks With Canada's Foreign-Investment Laws" which focused on the "risks national governments take when they signal to foreigners that certain sectors are off limits to investment."

The Wall Street Journal article also quotes MDA CEO Dan Friedmann as stating that, while he agreed with the government decision to block the proposed 2008 sale of the space technology division of MDA to US based Alliant Techsystems (ATK), his company is "now poised to lay off workers if it doesn't come to terms with the government over funding."

So the timing of the government update of the foreign investment regulations is likely not entirely coincidental.

As outlined in the April 10th, 2008 CBC News article "Federal government blocks sale of MDA space division," the proposed $1.3 billion CDN sale of MDA to ATK was blocked by the Federal government in 2008 over Canadian concerns relating to national sovereignty, ongoing access to sensitive RADARSAT1 and RADARSAT2 data plus issues relating to the viability of the follow-on RCM program.

Fox Plaza in CA, which served as the fictional Nakatomi Plaza in the movie Die Hard, but looks nothing like MDA headquarters in BC or the John H. Chapman Space Centre in PQ.

While the current valuation of the MDA space technology assets is likely still over the $1 billion dollar "monetary threshold" required for review under the proposed regulations, the Federal government seems to have no objection to MDA selling off assets piecemeal. For example, the December 2010 sale of the MDA property information business to TPG Capital for $850 million CDN, as described in my November 6th, 2010 post "Happy 15th RADARSAT..." received essentially no government scrutiny and generally passed unnoticed in Canada.

So these new rules seem to have provided MDA with a second option to remain profitable in the absence of additional government funding for RCM by selling off sections of the company or developing new business lines. But the Federal government has also (whether accidentally or not) suggested to MDA that "actions speak louder than words" by refusing to address the RCM issue directly or provide any additional funding for the program.

In other words, "Yippee Ki Yay" MDA.

As outlined in my May 14th, 2012 post "MDA & RADARSAT Constellation's War of the Words" the latest public statements are only the most recent in a series of escalating comments over RCM funding. Recently released Department of National Defense (DND) documents indicate that RCM, originally estimated at $600 million CDN, is now likely to cost over $1 billion CDN to complete.

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