April 11, 2008 / 12:25 AM / in 10 years

Canada blocks sale of MDA satellite unit to U.S.

OTTAWA (Reuters) - The Canadian government said on Thursday it had blocked the $1.325 billion sale of sensitive satellite technology to U.S. rocket-maker Alliant Techsystems Inc would threaten Canadian sovereignty by handing the high-tech Radarsat 2 satellite to a foreign firm.

“Certainly ... where jurisdictional law would sit for the satellite post-transaction is a relevant consideration,” Industry Minister Jim Prentice told reporters.

In a terse two-page letter to Alliant Tech on Tuesday, Prentice said: “I am not satisfied that your investment is likely to be of net benefit to Canada” and gave the firm 30 days to contest the decision.

Opponents say the sale could result in Washington ordering Alliant Tech not to let Ottawa see data from the satellite, such as images revealing whether U.S. ships were sailing through Arctic waters. Washington rejects Canada’s claim to sovereignty over Arctic sea passages, which it says are international waters.

Prentice’s comments -- and the strong backing he earlier received from Prime Minister Stephen Harper in Parliament -- indicate that however Alliant Tech proposes to restructure the deal, it will not be allowed to buy the satellite technology.

“I would think it would be very difficult for the government to flip-flop on this issue,” said Scott Brison, a legislator for the opposition Liberal Party.

Industry sources said officials from the U.S. firm would visit Ottawa next week.

The deal was a problem for the right-leaning minority Conservative government, which opponents say is too close to the administration of U.S. President George W. Bush.

Even some Conservative legislators -- usually under the strict control of Harper’s office -- broke ranks to criticize the idea of selling satellite technology and land-based data processing centers to a U.S defense products firm.

Prentice dismissed suggestions that his decision meant Canada was becoming protectionist.

“This particular transaction relates to Radarsat 2, which is an extremely important piece of technology ... it is a very unique situation,” he said.

The U.S. State Department declined to comment.

JP Morgan welcomed Prentice’s move, saying in a research note that it had been concerned about the volatility of the U.S. space budget as well as the high debt level that Alliant Tech would have been obliged to take on to finance the deal.

Alliant Tech shares closed up $0.97, or 0.9 percent, at $108.56 in New York.

MDA shares closed down C$4.00, or 8.5 percent, at C$42.85 on the Toronto Stock Exchange, after falling nearly 11 percent earlier.

MDA Chief Executive Daniel Friedman told a parliamentary committee last week that Canadian federal spending on space was not enough to support a company of MDA’s size.

He said Ottawa had “all the necessary powers and authority to ensure that in future it will continue to exercise full control over Radarsat 2.”

MDA merely noted that talks between the two sides were continuing. It also plans to sell to Alliant a unit that makes robotics for the International Space Station.

In all, the firm has received a total of about C$445 million ($435 million) from the Canadian government.

($1=$1.02 Canadian)

Additional reporting by Bill Rigby in New York, Julie Vorman and Jim Wolf in Washington and Randall Palmer in Ottawa; editing by Rob Wilson

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