VZCZCXRO9206
PP RUEHGA RUEHHA RUEHQU RUEHVC
DE RUEHOT #0498/01 1012200
ZNR UUUUU ZZH
P 102200Z APR 08
FM AMEMBASSY OTTAWA
TO RUEHC/SECSTATE WASHDC PRIORITY 7668
INFO RUCNCAN/ALL CANADIAN POSTS COLLECTIVE
RUCPDOC/DEPT OF COMMERCE WASHDC
UNCLAS SECTION 01 OF 02 OTTAWA 000498
SIPDIS
SENSITIVE
SIPDIS
DEPT FOR WHA AND EEB
DEPT ALSO PASS USTR FOR SULLIVAN, HAMEL, KALLMER
COMMERCE FOR 4310/MAC/ONA
E.O. 12958: N/A
TAGS: EINV EFIN ETRD ECON CA
SUBJECT: CANADA BLOCKS SALE OF ICONIC SPACE ASSETS TO U.S.
FIRM
REF: 07 OTTAWA 1073
Sensitive but Unclassified. Please protect accordingly. Not
for Internet distribution.
1. (SBU) Summary. The Canadian government has decided to
block the acquisition by an American company of the space
business assets from MDA Corporation, including its
space-based imaging satellite, Radarsat 2. The decision
follows broad public concern over the sale, particularly over
the potential loss of the Radarsat system and its unique
capability to observe the Arctic. The denial is reportedly
Canada's first disapproval of a proposed foreign investment
in 23 years, a period during which Canada allowed over 12,000
foreign investments and acquisitions. Canada's MDA decision
appears to reflect a unique set of circumstances, and should
not portend a wholesale change in Canada's approach to
foreign investment. End summary.
2. (U) On April 10, federal Minister of Industry Jim Prentice
denied the application by American firm ATK to acquire the
space-related business assets of Vancouver-based MDA for $1.3
billion. Among the assets MDA had offered to ATK was the
Radarsat 2 radar imaging satellite launched in December 2007.
MDA also built the iconic Canadarm used on space shuttles
and the new DEXTRE robotic manipulator delivered to the
International Space Station earlier this year.
3. (U) Under the Investment Canada Act (ICA), the government
can review a foreign investment if it involves the
acquisition of a Canadian business above a certain
dollar-value threshold. For the United States and other WTO
members, the investment threshold is currently C$295 million
for a direct acquisition. (The investment is not reviewable
if it is an indirect acquisition.) The Minister of Industry
carries out this review unless the acquisition involves a
cultural industry, in which case the review is conducted by
the Minister of Canadian Heritage.
4. (U) Under the ICA, the responsible minister conducts the
review of the proposed investment and gauges the "net
benefit" to Canada by evaluating several factors. These
factors include the effect of the investment on technological
development, product innovation, and product variety in
Canada. In the MDA case, Minister Prentice decided that the
proposed sale did not provide "net benefit" to Canada.
5. (U) Few observers expressed surprise over Prentice's
decision. Opposition to the sale over recent weeks had been
broad-based, coming from opposition parties in Parliament,
labor unions, a Nobel Prize-winning chemist, Canada's first
astronaut, and even elements within the Conservative caucus.
Criticisms of the proposed sale focused on two issues: the
claim that the transfer of Radarsat 2 to an American company
could lead to a loss of sovereignty in the Arctic (the
satellite is said to be uniquely capable of providing
high-resolution images of the Arctic); and the investment by
Canadian taxpayers of some C$300 million in Radarsat 2 before
the government transferred it to MDA in the late 1990s.
(Ironically, MDA at that time was majority owned by Orbital
Sciences Corporation of California.)
6. (U) The American company, ATK, now has 30 days if it
wishes to make additional arguments, provide additional
information, or propose new arrangements to make the case
that the sale would bring "net benefit" to Canada. The
minister would then make a final decision, which is not
reviewable by Canadian Courts.
7. (U) The MDA case appears to be the first outright denial
Q7. (U) The MDA case appears to be the first outright denial
of a foreign investment since the Investment Canada Act was
revamped in the mid-1980s. Since then, the government has
reviewed and approved 1,587 foreign takeovers according to
figures from Industry Canada, while another 11,214 foreign
acquisitions required notification under the ICA, but not a
formal review. The MDA case comes at a time of increasing
public concern over foreign corporate ownership in Canada
(reftel) and when opposition parties are pressuring the
minority Conservative government to address the putative
"hollowing out" of Canada's manufacturing sector.
8. (SBU) Comment: While Prentice's decision could lead to
discussion between the government and ATK that will yield
agreement, observers say the unusually firm phrasing of
Prentice's denial suggests it is meant to be final.
Observers also suggest that, given the public outcry over the
OTTAWA 00000498 002 OF 002
proposed acquisition, the decision is politically
understandable and in fact likely to be highly popular.
9. (SBU) While Embassy believes that the political concerns
and pressures at play here will discourage further
liberalization of investment policy, at least for the time
being, the MDA case appears to arise from a unique set of
circumstances that should not portend a wholesale change to
Canada's approach to Foreign investment. Indeed, at a press
conference late on April 10, Prentice emphasized that this
case is a "one off" decision and that Canada is still "open
for business." End comment.
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