America Buys the Canadarm
MacDonald Dettwiler Sells its Information Systems for $1.325 Billion
MDA management should be commended for a bold international business deal that collects a premium price for the company's maturing aerospace assets.
On January 8, Vancouver-based MacDonald Dettwiler (MDA on TSX) announced the sale of its Information Systems and Geospatial Services operations to Alliant Techsystems (ATK on NYSE) of Minneapolis.
Information Systems includes the advanced RADARSAT family of satellites, but is perhaps best known for the Canadian Space Arm. Canadarm was first delivered to NASA in April 1981 for its space debut on Colombia seven months later. Since then, the Canadarm has supported some 60 Space Shuttle missions as well as the International Space Station.
Under the Investment Canada Act, the Canadian federal government can only approve a foreign investment exceeding C$281 million provided that the deal benefits Canada.
Perhaps sensing sympathy from Canadian nationalists, some politicians point to a potential exodus of aerospace engineering jobs and talent to the United States. However, Alliant Tech promises to keep MDA’s 1,700 space program workers in Brampton, Ontario. The new Minneapolis-based owners will also maintain the Canadarm’s name, helping to preserve international recognition for Canadian technological innovation.
MacDonald Dettwiler will continue to run its robust Information Systems businesses out of its head office in Vancouver, British Colombia. Therefore, lobbyists can hardly use the sale of Canadarm as an example of foreign business interests hollowing out corporate Canadian jobs.
Cost-Benefit Analysis
From an international business perspective, MDA’s sale of its Information Systems segment makes sense.
While Canadarm and RADARSAT satellites are high profile, sales for MDA’s Information Systems have been slowing for years. Information Systems generated 71% of company revenues in 2000. That percentage fell dramatically to 29% during the first nine months of 2007.
The sale of Canadarm-related operations enables MDA to focus on its stronger and more internationally diversified Information Products segment, which includes:
- European online search businesses
- European Home Information Packs (HIPs) and real estate valuation information products
- North American property information business systems
- Global geospatial (e.g. satellite mapping) services.
MDA’s operating earnings for the first nine months in 2007 hit C$103 million, up less than 2% from the same period in 2006. With most Information Systems revenues further driven down by the weakening U.S. currency, MDA management recognized that selling its Canadarm and satellite suite of assets will generate more robust sales and earnings growth.
In fact, the $1.325 billion price tag will enrich MDA’s financial ability to ramp up sales of core Information Product in international markets.
Besides, the deal completes a friendly takeover bid without handing over the keys to MDA’s most strategic assets. In fact, some international trade analysts write that MDA’s complementary Information Systems businesses will see cross-over sales when Alliant Tech increases penetration in its home American market.
The stock market certainly liked MDA’s sale. MDA’s stock price, which had been stagnating at around $42, immediately jumped some 20% to near $50 after the Canadarm deal was announced.
References
This article presents independent calculations and insights based on data drawn from source material on mda.ca including MDA’s press releases as well as the Brett Popplewell’s January 10, 2008 article ‘The star-spangled Canadarm’ in the Toronto Star.
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