A U.S. hedge fund has made an unsolicited bid for a Vancouver-based high-tech firm that recently won Ottawa's approval to be taken over by a Chinese communications giant.
The federal opposition parties have challenged the Chinese takeover of Norsat International, which specializes in satellite communications for security and defence sectors, because the federal government did not conduct a full-scale national security review.
Norsat has military customers, including the Pentagon, and is also delivering a satellite communication system this year to be used by the Canadian Coast Guard.
The bid for $11.50 (U.S.) a share by Privet Fund Management of Atlanta has not yet been accepted by Norsat's board of independent directors. They have asked Hytera Communications of Shenzen, China, to match the bid or Norsat will accept the Privet offer and pay a termination fee of $2.5-million (U.S.) to Hytera.
If Privet buys Norsat, it will be subject to a national security screening that all Canadian companies must undergo when purchased by foreign firms. Given that Privet is an American firm, it is unlikely that government officials would recommend a more in-depth national security review.
However, a U.S. source said it expects Hytera will be able to outbid Privet, suggesting the firm – 52-per-cent owned by Chinese billionaire Chen Qingzhou – will get state financing to gain control of the Canadian technology.
The government's decision to greenlight Hytera's takeover without a national security review was roundly criticized by Conservative and NDP MPs, who expressed concern about handing over sensitive satellite technology to China.
Customers listed on Norsat's website include the North Atlantic Treaty Organization, the U.S. Department of Defence, the U.S. Marine Corps, the U.S. Army, the Irish Department of Defence, the Taiwanese army, the aircraft-manufacturing company Boeing and major journalism outfits including CBS News and Reuters.
Norsat says its technology is also used by NAV Canada, operator of the country's civil air-navigation service. In January, Norsat announced a big order to supply its "Globetrekker" portable satellite terminals to a "combat support agency" supporting the U.S. Department of Defence.
Richard Fadden, a former head of Canada's spy agency, said he would have recommended that Ottawa conduct a full-fledged national security review.
"On balance, and still without details, I would likely have suggested a review out of an abundance of caution," said Mr. Fadden , who was also the national security adviser to Prime Minister Justin Trudeau before he retired last year.
A formal security review would serve to "reassure allies and to tell the People's Republic of China we are always vigilant, even if ultimately the transaction is okayed," he said.
A senior U.S. government official who did not want to be identified told The Globe and Mail that the Chinese takeover of Norsat International was "fairly sensitive" and, as a result, the United States would not comment. The official declined to say whether the Trudeau government had consulted Washington about the transfer of the satellite communications technology to a Chinese company.
The Prime Minister has made closer relations with China a significant foreign-policy objective and is in exploratory free-trade talks with Beijing. When the Liberals came into office, briefing books prepared by the Department of Global Affairs warned that China believes it has been "unfairly targeted" by national security reviews. China's ambassador to Canada, Lu Shaye, told The Globe earlier this year he considers national security reviews tantamount to trade protectionism.