M&A

Dishing it out

Norsat deal becomes entwined in US politics

Norsat-w

Canada’s Norsat is a company which claims to provide communications solutions for clients in challenging environments. Right now it is proving more of a challenge itself – as far as the Canadian government is concerned.

Norsat’s proposed sale to China’s Hytera Communicaton has generated a geopolitical row for the governing Liberal Party, led by Prime Minister Justin Trudeau. Since it came to power in 2015, Trudeau’s government has been pivoting towards China and it wants to establish a free trade agreement. Trudeau has also been accused of waving through a number of ‘sensitive’ acquisitions in a bid to keep Beijing happy.

Among them is the sale of ITF Technologies, which produces laser technology for the military. Canada’s Globe and Mail says the sale to Hong Kong-listed O-Net Technologies earlier this year was approved against the advice of the CSIS, Canada’s security services. And the government has run into stiffer opposition on the proposed sale of satellite systems provider Norsat, whose clients include a number of government departments in the United States, as well as Nato and Taiwan’s armed forces.

Trudeau initially defended the decision on Norsat by saying that the government had taken advice from its security officials before approving a deal with Hytera under the Investment Canada Act (ICA). He also said that the Americans were consulted before Canada gave the green light. However, CSIS acting director Malcolm Brown has responded that the ICA covers preliminary security reviews and that the decision on whether to implement a fuller review lies with the Federal cabinet.

The Hamilton Spectator, another Canadian newspaper, took a dim view of the decision. “The Canadian government’s worthy pursuit of a stronger relationship with China should not come at any cost,” it warned. “China is a Communist country ruled by a single party. It is a dictatorship with a terrible record of trampling the human rights of its citizens.”

Chinese attitudes were clear cut. “A free, open and fair trade and investment environment is beneficial to both China and Canada,” urged Foreign Ministry spokesperson Lu Kung. “China hopes Canada will be able to provide a fair environment for Chinese entities to invest.”

“From the Canadian media’s relative reports, in these commercial merger cases China is often regarded as an enemy that jeopardises Canada’s national security,” added Yang Yundong, a spokesman for the Chinese Embassy in Ottawa. “Absurd thoughts like this totally go against mutually beneficial cooperation between China and Canada.”

The saga began last September when US hedge fund Privet tried to take over Toronto-listed Norsat. It already held a 17.6% stake and made a cash offer for the remainder of the company, increasing its bid in March. A few weeks later there was a matching offer from Shenzhen-listed Hytera Communications, which makes radio systems and is controlled by billionaire entrepreneur Chen Qingzhou. Privet responded by raising its offer and Hytera lifted its bid again. Both companies have now made matching bids of $11.50 a share, valuing Norsat at a little over $70 million.

On Tuesday Norsat’s directors recommended Hytera’s offer and the two companies signed definitive terms for a final sale. Nonetheless, Norsat has also warned investors that there is no guarantee the transaction will get all the necessary approvals. If it does, the net result will be a financial windfall: the current bid is more than double the price the stock was trading at last June.

Meanwhile Reuters has reported that the US Congress is considering strengthening the oversight of the Committee on Foreign Investment in the United States (CFIUS) in cases of Chinese investment.

Citing an unpublished report from the Pentagon, Reuters highlighted concerns that the Chinese have been skirting the current rules by investing in start-ups or buying minority stakes in Silicon Valley companies developing new technologies.

“We’re examining CFIUS to look at the long-term health and security of the US economy, given China’s predatory practices,” an unidentified Trump administration official told the local media.


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