Canada blocks Alliant satellite plan

Alliant Techsystems has to rescript its plan for becoming a $5 billion company anytime soon.

Canadian officials on Thursday balked at the company's plan to buy a Toronto-based satellite business, saying they were "not satisfied" that the $1.3 billion deal -- which would be Alliant's largest and its first outside the United States -- offers any benefit to Canada.

Executives of Edina-based Alliant had viewed the purchase of MacDonald, Dettwiler & Associates (MDA) and its satellite operations as a major coup that would give Alliant the ability to make every part of a satellite for the first time.

The deal, announced in January, had been expected to close this month.

Instead, in an unusual move, Canadian Industry Minister Jim Prentice fired off a letter that sent Alliant officials scrambling to draft an appeal. Alliant has 30 days to "make representations and submit undertakings" that would show that the deal "is of net benefit" to the Canadian economy and security interests.

"Discussions with the Canadian government continue," Alliant spokesman Bryce Hallowell said. "This is part of the process."

Industry analysts said Canada's move was rare and has everything to do with fears that important jobs and technological capabilities might leave the country if the sale went through.

"This is a pretty unusual case," said defense analyst Darcy Wegh with Vanguard Marketing International in Phoenix. MDA workers were angry about the pending deal from the beginning, she said, launching protests, demanding meetings with their legislators and firing off e-mail complaints to industry observers across the United States and Canada.

A major concern was that Alliant might "Americanize" the company's culture, Wegh said.

The analyst community never saw a rebuttal from Alliant officials, a move that might have soothed workers' fears, Wegh said. Companies such as Northrop Grumman have firmly stated going into bids their intentions to retain jobs in certain countries, a strategy that has helped them win deals, Wegh said.

If Alliant can satisfy Canadian objections, Alliant would gain 1,900 employees, $500 million in annual revenue, significant international operations and new technological capabilities. The purchase would be double the $685 million Alliant paid for rocket booster firm Thiokol in 2001, its second-largest deal.

Loren Thompson, defense industry consultant for the Lexington Institute, believes the deal is still salvageable. The objections "could backfire on Canadian interests," he added, citing the fact that a Canadian firm just bought part of a Boeing Co. operation in Wichita, Kan.

MDA has significant operations in Toronto; Montreal; Vancouver, British Columbia; and Halifax, Nova Scotia, and engineering and robotics facilities in Houston, near NASA's Johnson Space Center. MDA also has ground stations that collect and analyze satellite data in 35 countries.

It is best known for those commercial and military satellite data collection services and for its high-resolution RadarSat-2 satellite, which was launched in December after more than 10 years of investment and research help from the Canadian government. Analysts speculated that the time, prestige and money the government invested in RadarSat-2 unleashed the controversy within Canada that has continued since MDA and Alliant announced their plans.

Because Canada and the United States both have claims to parts of the Arctic Ocean, some Canadians voiced concern about losing control of the polar-orbit satellite to a territorial rival.

Another point of national pride is MDA's robotic "Canadarm" device, which moves satellites around for NASA's space shuttle and the International Space Station.

At the time of the announcement in January, Alliant CEO Dan Murphy had said, "This acquisition is a big deal for us. ... We have been working toward this for a number of years and are glad to bring it home."

Is the deal really dead?

Some analysts believe that the Canadian government's letter this week signals that Alliant won't be bringing MDA home after all.

"It would take a lot to move the Canadian government on this. Because a small change would not impact the deal. And the Canadian government would look silly reversing itself," said JSA Research defense industry analyst Paul Nisbet. "They might offer the Canadian government more autonomy for that (MDA) subsidiary ... but I can't imagine that they can do enough to really change things very much without hurting themselves. I mean, whatever they might do would probably lower the profit to their company."

The deal would have catapulted Alliant toward its long-term goal of becoming a $5 billion firm. Alliant now generates $4.1 billion in annual revenue from ammunition, missile, space rocket propulsion systems and satellite component contracts.

MDA's business would have landed Alliant more nonmilitary commercial contracts, a boost given the uncertain future of the Iraq war, for which it supplies ammunition, analysts said.

Alliant has grown its satellite component-making capabilities through a number of smaller acquisitions over the years, including Swales Aerospace in 2007. That company's headquarters in Beltsville, Md., now is the home of Alliant's Space Division, a part of the Mission Systems Group.

Should the MDA deal fall through, there are few significant alternative acquisition candidates in the satellite arena, Nisbet said.

Alliant shares rose 97 cents to $108.56 Thursday, while shares of MDA fell $4 to $42.85.

Dee DePass • 612-673-7725