Murphy: Acquisition Will Make ATK Competitive with the Large Primes

by












  Space News Business

Murphy: Acquisition Will Make ATK Competitive with the Large Primes

By BRIAN BERGER
Space News Staff Writer
posted: 16 January 2008
03:46 pm ET





WASHINGTON —




A


lliantTechsystems (ATK) expects its acquisition of Canada’s largest space hardware business to propel the Minneapolis-based aerospace and defense contractor into fifth place among U.S. space companies, better positioning it to




compete against the top-tier contractors for government business while also opening up new opportunities abroad.



In a deal announced Jan. 8, ATK has agreed to




buy the




information systems and geospatial information services business units of Richmond, British Columbia-based MacDonald, Dettwiler and Associates (MDA) for $1.33 billion.

Daniel Murphy, ATK’s chairman and chief executive officer, said in an interview that the acquisition would give ATK world-class capabilities in space-based radar systems and space robotics, among others




. Murphy said the acquisition




also would give ATK greater access to non-U.S. markets for its goods and services.

ATK intends to combine the MDA businesses




with another




recently acquired space company




, Swales Aerospace of Beltsville, Md., to create an




ATK Space Systems group




headquartered in Maryland. The group will be led by Carl Marchetto, who stepped down in December as head of Orbital Science Corp.’s Space Systems Group.

“With the acquisition of the MDA space businesses we now have a full-spectrum space business and we will be able to compete for and win business across the globe,” Murphy said.

Murphy expects the combination of




the MDA and




Swales Aerospace operations to give ATK




a




leg up in the small satellite market, which he sees as a growth area




.

“We at ATK really do believe that we are on a cusp of a change in satellite design, and that’s not to say that big satellites are going to go away, but they will be complemented by more satellites that are smaller and are networked,” Murphy said. “MDA and Swales together provide us a darn near world-class capability.”

In addition to giving ATK greater access to non-U.S. markets, he said the acquisition




also would allow ATK to market MDA’s space-based radar capabilities and other products and services




to




U.S. national security customers.

“There is a substantial amount of government space work that is not available to non-U.S. participants,” Murphy said. “What we have now will be a U.S. flag over this business, which enables us as a U.S. company to support U.S. government space programs in a way that MDA as a Canadian entity cannot.”

The acquisition would add more than 1,900 people to ATK’s payrolls and bring




in a projected $500 million in additional revenue during the first year.

The deal is expected to close in March or April pending final approval by shareholders




of both companies and U.S. and Canadian regulatory authorities.






ATK expects $2 billion in




sales between the new Space Systems group and Brigham City, Utah-based ATK Launch Systems, which builds solid-rocket boosters for the U.S. space shuttle program and is the prime contractor for the main stage of NASA’s planned Ares 1 crew launch vehicle.

ATK ranked eighth among U.S. firms in Space News’ 2007 list of the world’s top 50 space manufacturing and services companies. All else being equal, $2 billion in sales would move ATK into fifth place among U.S. firms,




behind Raytheon Co. of Waltham, Mass., and ahead of Science Applications International Corp. of San Diego.

MDA is the Canadian Space Agency’s prime contractor for its contributions to the international space station and perhaps is best known as the builder of the station’s giant robotic arm.




MDA also worked in partnership with the Canadian Space Agency to build Radarsat 2, which launched in December, and holds the exclusive rights to distribute the satellite’s imagery outside Canada.

Canadian Space Agency spokesman Paul Engel said Jan. 10




the agency has had a long and successful relationship with MDA and expects that to continue under the company’s new ownership.





Murphy said he does not expect U.S. ownership will close off MDA opportunities in Canada




or in Europe, where Canada enjoys associate member status in the European Union.

“What the Canadian government is very concerned about is where the work is performed and they don’t care who is flying the flag,” Murphy said, adding that he was to meet




with Canadian government officials Jan. 10 and 11 “to assure them that our intent is to grow jobs in Canada, not to reduce them.”

Mark Garneau, a former




Canadian Space Agency president who currently is running as a Liberal candidate in Canada’s upcoming federal election, told the Canadian Press that the MDA sale might be a smart business move, but that more is at stake than shareholder return.

“A foreign purchase of space capability in this country, I believe needs to be examined from more than just an economic point of view,” Garneau told the wire service.



In a call with analysts after announcing the acquisition, Murphy said MDA’s backlog at the end of 2007 was roughly $540 million,




with about two-thirds of that business with




customers in Canada and elsewhere outside the United States.

Murphy said the acquisition would nearly double ATK’s non-U.S. revenue and greatly expand its




presence abroad




. MDA




operates 35 satellite ground stations around the world, he noted




.

Murphy also told analysts that he expects the addition of MDA to help drive ATK’s annual growth into the 8-10 percent range since the company will be better positioned to




win bigger satellite contracts.

“The entire series of satellite constellations that support the U.S. Department of Defense is aging badly and has to be replaced,” Murphy said. “We intend to be a big part of that in supporting the large contractors who are the developers of the very complex geosynchronous satellites and we intend to be the leader in the development and provision of small satellites that will complement those geosynchronous satellites.”

Murphy added: “This is a big growth area and we anticipate that satellites, specifically in support of the U.S. government, will generate revenues greater than the pace of what overall [Department of Defense]




business might be.”

ATK is a $4.1 billion company with 17,000 employees. Its main businesses are solid-rocket propulsion, ammunition and advanced materials.

Murphy told reporters in October that ATK was in the hunt for a $1 billion acquisition. Murphy also mentioned that ATK recently had tried without success to buy a Canadian space company. On Jan. 8, Murphy acknowledged that that company had been MDA.

The first time around, ATK was rebuffed by MDA’s board of directors. While that was not the case with ATK’s latest offer, the sale must still be approved by MDA shareholders.







Assuming the sale goes through, ATK




would not be MDA’s first U.S. owner. Dulles, Va.-based Orbital Sciences




owned MDA from 1995 through 2001. Orbital began divesting its ownership in 1999, selling off a 30 percent stake in the company. Orbital then took MDA public in Canada on the Toronto Exchange, selling another 10 percent stake in the process. In 2001, Orbital completed its divestiture through several private transactions.