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MDA sells real-estate arm once seen as key to growth

Dan Friedmann, President and Chief Executive Officer of MDA,13800 Commerce Parkway in Richmond, B.C., in front of an artist rendition of the RADARSAT constellation for the Canadian government.

LAURA LEYSHON FOR THE GLOBE AND MAIL/laura leyshon The Globe and Mail

When MacDonald Dettwiler wanted to get out of the stalled space business in favour of its property-information business less than three years ago, the Stephen Harper government blocked the $1.3-billion sale to a U.S. firm.

It was the first time the federal government had vetoed a sale under the Investment Canada Act. Potash Corp. is the second.

Ironically, with growth in space surging, MDA is now jettisoning its struggling property-information business for $850-million to double down on its quickly growing space division.

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The sale to Texas private equity firm TPG Capital, announced Friday, will raise funds for MDA to make acquisitions, according to chief executive officer Daniel Friedmann. He wants to expand in areas such as communications satellites and earthbound applications of the company's surveillance technology.

"It won't happen in one big bang. We're going to make several moves," Mr. Friedmann said in an interview on Friday morning.

The property-information divestment will not spark a debate like the blocked sale of MDA's space division. In early 2008, with space-related work stalled and property-information expanding rapidly, MDA tried to sell the space assets to U.S.-based Alliant Techsystems (ATK).

However, the assets included Radarsat-2, a then brand new earth-monitoring satellite that the federal government concluded was a key to Canadian sovereignty and shouldn't be sold to an American company.

On the property-information side, there will be no political fireworks. While it began in British Columbia about a decade ago, the vast majority of the business is in the U.S. and Britain. For years it drove growth at MDA but peaked in 2007, when it accounted for about three-quarters of record company revenue of $1.2-billion. It's been declining ever since. Mr. Friedmann said the business has matured, suggesting its rapid-growth days are over for good.

MDA decided to try to sell the business earlier this year if it could get a good price for it.

Investors cheered the move, driving MDA stock 3.6 per cent higher to $52.41 - its highest point in 3½ years, barely short of its all-time high of $52.85.

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Since the blocked sale, MDA has scored a series of big wins for its space division. From the Canadian government, it won a deal in late 2008 to supply and help operate unmanned aerial vehicles in Afghanistan and then used that to score a similar deal with Australia.

MDA, based in the Vancouver suburb of Richmond, also won deals in the past year in Russia and Ukraine for communications satellites worth about $500-million. That helped drive the company's space order backlog to a record $1.1-billion; revenue for the space division has jumped 26 per cent in the first nine months of this year.

In a conference call on Friday, Mr. Friedmann cited the surveillance market - MDA has pitched its technology for commercial applications, such as pipeline monitoring - and communications satellites as areas where the company wants to grow.

Another factor behind the sale was the unusual structure of MDA, essentially a two-part company whose halves didn't seem related. Analysts such as Steven Li of Raymond James have cited this as a long-time concern for investors. Last month, Mr. Li said: "From an investor's perspective, one of the challenges with [MDA]is, 'You guys are too complicated.' "

Mr. Friedmann acknowledged MDA management had considered this. "That's always been a factor, and that's some input we've taken in," Mr. Friedmann said. "Our objective is to create shareholder value."

The proceeds from the sale aren't needed for another major growth project, in-orbit satellite servicing - essentially a gas station in space for aged satellites. MDA is working to sign a cornerstone customer for this project, which would be a commercial first for any company in the world.

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Also on Friday, MDA announced an annual dividend of $1 a share, to be paid twice a year, starting next March. The company had previously signalled it would likely introduce a dividend soon. The $1 dividend would generate a yield of about 2 per cent, based on the company's current stock price.





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About the Author
National correspondent, Vancouver bureau

David Ebner is a national correspondent based in Vancouver. He joined The Globe and Mail in 2000 and worked in Toronto and Calgary before moving to Vancouver in 2008. He has reported on a wide range of stories – business, politics, arts, crime – and has covered sports since 2012. More

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