MDA Corp. Sets Internal Deadline for Reaching Acquisition Decision

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PARIS — Canada’s MDA Corp. will either decide on a large acquisition of a U.S. satellite hardware or space services company by July or return to shareholders the cash it is now retaining for such a deal, MDA Chief Executive Daniel E. Friedmann said May 3.

The sale of its property-information business in January has transformed Richmond, British Columbia-based MDA into a company almost entirely focused on the space industry — space robotics, satellite construction and Earth observation services via satellite and from unmanned aerial vehicle services.

It has also given the company a treasury that, as of March 31, totaled 793 million Canadian dollars ($839 million) — the equivalent of nearly a year’s revenue for MDA at its current size.

In a conference call with investors, Friedmann made clear the company is searching for a large target and not a strap-on acquisition. Key characteristics of the target company would be a solid entry into the U.S. government market and a presence in markets where MDA has expertise that could be transferred to a U.S. operation for access to government business.

“We are looking at deals of a billion dollars, 400 million, 200 million,” Friedmann said. “The goal is to try to get somewhere by July. We don’t want to hold on to that money much longer than that.”

MDA has been repositioning itself in the past couple of years as a full satellite prime contractor and not a component builder. It also has made an initial financial commitment to inventing a market for performing refueling and minor repairs of satellites already in orbit.

The company has won major telecommunications satellite electronics-payloads contracts in Russia, and is prime contractor for Ukraine’s first national telecommunications satellite.

The Ukrainian work had been stalled as Ukrainian authorities sorted out the satellite’s orbital slot and broadcast-frequency registration with international regulators.

Those regulatory discussions put the contract about four months behind its original schedule, Friedmann said. But recently Ukraine has settled the issue and work has restarted. The satellite is scheduled for launch in mid-2013.

MDA is prime contractor for Canada’s next-generation Radarsat Earth observation system, called Radarsat Constellation Mission (RCM), but Canadian government financial pressures have forced the Canadian Space Agency to parcel out RCM contract awards in small slices. The latest, awarded in March, is valued at 9 million Canadian dollars and permits MDA to continue work only through May.

Friedmann said upcoming Canadian elections could force a pause in the RCM work, which would cause the overall contract to increase in cost. He said negotiations are under way to permit MDA to tailor its RCM work rhythm to allow it to continue working through an election-related funding suspension.

MDA’s business of providing unmanned aerial surveillance services to governments involved in the war in Afghanistan is about to take a hit when the Canadian government, the service’s biggest customer, pulls out of the U.S.-led coalition in July.

MDA believes there is continued unmet demand for such unmanned aerial vehicle, or UAV, services in Afghanistan in addition to its Canadian and Australian customers, but the company has warned investors that it will not be able to make up the loss of the Canadian business, at least not in the short term.

Friedmann has been personally backing MDA’s Space Infrastructure Servicing (SIS) business proposal, which proposes to refuel aging satellites in orbit for a fee paid by the satellites’ owners. The proposal has won a tentative commitment from satellite fleet operator Intelsat of Luxembourg and Washington, which has agreed to pay some $280 million to MDA on completion of refueling of a half-dozen Intelsat satellites.

Intelsat General Corp. of Washington is working with MDA to find an additional customer in one or more U.S. government agencies. The two companies have said they would complete their initial work on SIS by mid-2011. Friedmann said that date still holds. He did not say whether MDA and Intelsat could proceed with the mission even without another customer.

For the three months ending March 31, MDA Corp. reported revenue of 206.5 million Canadian dollars, up 35 percent from the same period a year ago after having accounted for the separation of the property-information business. The Russian and Canadian satellite contracts figure heavily in the company’s current revenue stream.

Operating earnings, at 26.8 million Canadian dollars, were up 16.5 percent. Backlog at March 31 stood at 877 million Canadian dollars, down 12 percent from where it was Dec. 31. Friedmann said the company has won several multimillion-dollar contracts since March 31, including a contract valued at 40 million Canadian dollars with satellite builder Thales Alenia Space of France to build electronics gear for 81 second-generation Iridium mobile communications satellites.

 

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