Last week, Macdonald Dettwiler (TSX:MDA) received notice from the US Department of Justice that it had completed its review of the proposed acquisition of Space Systems/Loral and had granted an early termination of the waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976.
Cormark analyst Richard Tse says last week’s announcement was a surprising turn of events and removed a lot of uncertainty that had been built into MDA’s share price. With the elimination of the execution risk on the acquisition, the Cormark analyst said, in an update to clients Monday morning, that he was taking a more aggressive stance in the short term on the stock. Tse upgraded MDA to a BUY as he believed the stock would move back to the $55-60 range it traded in before the DOJ request. Tse maintained his $56 target price on the stock.
On Monday, following Tse’s morning update, shares of MacDonald Dettwiler gained $5.25 to close at $55.43. The stock then tacked on another $.78 yesterday.
Those who followed Tse’s advice Monday morning got an instant bump of more than 10%, as Macdonald Dettwiler was the exchange’s top gainer that day.
Cormark’s call was joined by analysts from banks such as CIBC and RBC Capital.
On June 27th, Macdonald Dettwiler announced it would pay (US) $875-million plus cash dividends and other payments from Space Systems/Loral, which the company expected to be in excess of (US) $135-million. Dan Friedmann, MDA’s president and CEO said the transaction, which essentially doubled the size of his company, was “game changing”.
Macdonald Dettwiler said that after the acquisition it will have annual revenues of $1.9 billion and an order backlog of $2.8 billion. In fiscal 2011, the company earned $129.6-million on revenues of $761-million.
Loral was founded in 1948 by William Lorenz and Leon Alpert as Loral Electronics Corporation. The company went public in 1959 and has since formed partnerships with Ford Aerospace, Qualcomm and IBM. In 1996, Lockheed Martin acquired the defense electronics and system integration businesses of Loral for $9.1 billion, and the company adopted the name it known by today. Loral’s revenue has grown from $869-million in fiscal 2008 to more than $1.1-billion in 2011.
At press time, shares of Macdonald Dettwiler were down 1% to $55.66.