Two Issues Combine to Scuttle an Aerospace Takeover

Concerns about national security laws in the United States and sensitivities over Canada’s control of its Arctic lands combined on Thursday to block a $1.3 billion takeover of Canada’s largest space equipment company by Alliant Techsystems of Edina, Minn.

The decision by Jim Prentice, the industry minister in Canada, to prohibit the sale of MacDonald Dettwiler & Associates is the first time a takeover has been stopped by Canada’s 23-year-old foreign investment law.

“We don’t see net benefits in this transaction to Canada,” Mr. Prentice told reporters.

The proposal raised issues about Canadian Arctic sovereignty that crossed party lines. It also revived a debate about control of Canada’s aerospace industry that stretches back to a 1959 decision to cancel the development of a Canadian fighter jet in favor of purchasing American aircraft.

The announcement was all the more unanticipated because it came from a Conservative government which has sought to improve relations with the United States and has generally opposed nationalist policies.

Mr. Prentice, however, said that the decision did not reflect a change in the government’s general trade and economic positions.

“This is not a protectionist government,” he said.

A spokesman for Alliant , a rocket and weapons maker better known as A.T.K., had little comment.

“I can confirm that discussions with the Canadian government are ongoing,” the spokesman, Bryce Hallowell, said. MacDonald Dettwiler had no comment beyond confirming the government’s decision.

A.T.K. now has 30 days to persuade the government to reverse its position, an outcome few predicted as likely.

While Mr. Prentice offered little detail about the decision, he said that “jurisdictional issues” surrounding a satellite owned by MacDonald Dettwiler but built largely with $450 million from the Canadian government played a role.

The government’s financing gives it broad access to the satellite’s data, which is also sold by MacDonald Dettwiler to businesses and other governments, including the United States.

The satellite, Radarsat-2, follows an unusual polar orbit and uses radar to peer through clouds. Before the launch from Kazakhstan last December, the Canadian government cast it as an important element of its efforts to assert control of the Arctic. United States and other countries reject Canada’s claim over the Northwest Passage, a potential shipping channel through the Arctic. High commodity prices have also prompted interest in minerals under the region.

“This satellite will help us vigorously protect our Arctic sovereignty as international interest in the region increases,” Mr. Prentice said in a statement issued in October.

Canadian legal experts and many politicians, including some Conservatives, said that a sale of MacDonald Dettwiler would put the satellite under the control of American laws that emphasize the need for satellite policies to follow the United States’ foreign and economic policy interests.

“If the United States becomes the licensing authority, Ottawa’s ability to control what the satellite is used for and to commandeer the equipment in emergencies might be lost,” Michael Byers, a professor of international law and global politics at the University of British Columbia, told a parliamentary hearing last month.

“Suppose, for instance, that Canada wanted priority access for sovereignty assertion purposes just as a major war involving the United States was breaking out in the Middle East,” Professor Byers said. “One can even imagine the U.S. government using Radarsat-2 in ways that directly contradict Canada’s interests.”

Marc Garneau, Canada’s first astronaut and a former president of the Canadian Space Agency, also recommended that the sale be stopped.

“It is certain that other countries with strategically important space companies would not allow such foreign takeovers,” Mr. Garneau told Parliament.

At separate Parliamentary hearings, Daniel E. Friedmann, the president and chief executive of MacDonald Dettwiler, and an A.T.K. executive rejected the idea that the Canadian government would lose any control of the satellite.

The United States Embassy in Ottawa referred questions about the satellite’s status to the State Department, which did not respond to requests for comment. In an e-mail note, Kristin Scuderi, a spokeswoman for the White House Office of Science and Technology Policy, said the office “has no role in this and therefore we decline to comment.”

MacDonald Dettwiler has its own complaints about the Patriot Act and other recent measures in the United States. Their restrictions against foreigners working on crucial projects like satellites, he said last week, limit MacDonald Dettwiler in bidding on contracts in the United States. That has left the Canadian government as the company’s only real customer, a fact that prompted the sale of its space unit.

Laura Ritchie Dawson, an assistant professor at the Norman Paterson School of International Affairs at Carleton University here, said the government’s decision to finally block a takeover under a law that was recently amended to include national security concerns does not make further rejections more likely.

“It does seem that this case is an exceptional one,” Ms. Dawson wrote in an e-mail message. “We would not be likely to see the government use the national security card much in the future nor should it have a chilling effect on investment.”