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Cablegate: Direct Investment in Canada: Window Closes for Atk To

VZCZCXRO4251
RR RUEHGA RUEHHA RUEHQU RUEHVC
DE RUEHOT #0657 1351458
ZNR UUUUU ZZH
R 141458Z MAY 08
FM AMEMBASSY OTTAWA
TO RUEHC/SECSTATE WASHDC 7851
INFO RUCPDOC/USDOC WASHDC
RUCNCAN/ALL CANADIAN POSTS COLLECTIVE

UNCLAS OTTAWA 000657

SIPDIS
SENSITIVE

DEPT FOR WHA/CAN; EEB/OIA; ISN/CATR (MALZAHN)
DEPT ALSO PASS USTR FOR SULLIVAN, HAMEL, KALLMER

USDOC FOR 4310/MAC/ONA

E.O. 12958: N/A
TAGS: EINV EFIN ETRD ECON CA
SUBJECT: Direct investment in Canada: Window closes for ATK to
amend its proposal to acquire MDA's space business

REF: (A) Ottawa 0498 (B) 07 Ottawa 1073

Sensitive but Unclassified - protect accordingly. Not for
distribution outside USG channels.

1. (SBU) SUMMARY: The 30-day period (ref A) has ended during which
U.S. defense firm Alliant Tech Systems (ATK) could have convinced
Canada's Industry Ministry with additional information or proposals
to approve its proposed acquisition of Canadian firm MDA's space
business. As no appeal is allowed, this terminates the process for
government consideration of ATK's proposed investment. Embassy
continues to hold the view (reftels) that Canada's denial of
permission for this purchase was driven mainly by negative public
reaction to the proposed sale, and that the denial does not
necessarily reflect a change in Canada's overall open policy with
respect to foreign investment. A blue-ribbon report on competition
policy, due by the end of June, is likely to frame the government's
thinking on broad issues of industry, investment and productivity.
END SUMMARY.

2. (SBU) May 8 marked the 30-day anniversary of Industry Minister
Jim Prentice's public announcement that ATK's proposed acquisition
of MDA assets, including RADARSAT-2, would not be "of net benefit to
Canada." Prentice sent a letter to this effect to ATK on May 8,
thereby terminating consideration under the Investment Canada Act of
ATK's proposal. An Industry Canada official told Embassy that while
the prospective investor (ATK) may file a new application, if such
an application is for essentially the same transaction, there is
little prospect that the Minister will be "satisfied it is of net
benefit to Canada."

3. Normally, a cool reaction by the GOC to a proposed foreign direct
investment at least leaves the door open to an amended proposal -
often leading to a non-public dialog between the prospective
investor and Industry Ministry officials - which may or may not
result in a direct investment. Under this arrangement,
unsatisfactory proposals went unapproved and never led to an
outright rejection of an investment. The ATK-MDA case was unique in
having prompted such an outright denial, apparently because of
considerable and vocal opposition to the deal and the political
sensitivities of a minority government (ref A).

4. (SBU) A surge in foreign direct investment in Canada in recent
years (the stock of inward FDI has increased 32 percent from 2004 to
2007 and now totals more than C$500 billion) has included foreign
takeovers of some of the most prominent names in Canadian business,
such as Hudson's Bay Company (retailing), Falconbridge and Inco
(base metal mining) and Intrawest (ski resort development). Not
surprisingly, the FDI increase has stirred up echoes of
long-standing anxiety about foreign corporate control of Canadian
private assets - an old theme in Canadian national politics. Still,
Embassy concluded in mid-2007 that a balance of political forces
appeared likely to maintain Canada's relatively open policies on
foreign investment (ref B).

5. (SBU) Since his April 10 statement on the ATK-MDA deal, Industry
Minister Jim Prentice has repeatedly asserted that foreign
investment is beneficial to Canada and that there has been no change
in government policy toward FDI. Embassy believes this to be the
case.

6. (SBU) Going forward, the current Conservative Party government's
thinking on industry, investment and productivity is likely to be
framed by the expected report of a blue-ribbon panel on competition
Qframed by the expected report of a blue-ribbon panel on competition
policy, which is due to report to Prentice next month. This report
may help to point the way toward further liberalization in certain
federally regulated industries (notably telecoms and financial
services). The panel's terms of reference are available at
http://www.ic.gc.ca/epic/site/cprp-gepmc.nsf/ en/home .

WILKINS

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