Direct investment in Canada: Window closes for ATK to

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