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. 
 
Visit Canada,s Economy and Environment Forum at 
http://www.intelink.gov/communities/state/can ada 
 
WILKINS