Seeing growth potential in the U.S., and overlooking problems with part of Maxar’s business landscape, shareholders voted overwhelmingly in favour of the U.S. domestication plan.
A rough year
It’s been a rough transition year for Maxar. After a disappointing earnings report in late February, Maxar announced a few days later that CFO William McCombe was leaving the company. After the poor quarterly report and with McCombe leaving, the stock took the first of three significant drops this year.
In March, SSL, the Maxar business unit that builds satellites won a contract for the GEO satellite AMOS-8 only to lose the contract later after the government of Israel said it wanted a local contractor the build the satellite. That combined with a GEO communication market that went from soft, to almost dormant, hurt Maxar’s outlook and SSL’s business.
Then in early August notorious short seller Spruce Point Capital went after the company and the stock took its second and biggest drop of the year.
After Maxar reported disappointing third quarter results on October 31, and with the news that the SSL GEOComm business holdings were looking to be sold, the stock hit its year-to-date low on November 1 at $17.68. That’s a far cry from the $80.88 the stock reached on January 2nd of this year. However, after the low earlier this month, the stock has rallied and closed Friday at $24.63.
Shareholder look to the future
Even with a tough year to date, it appears shareholders are looking to future growth as a U.S. domesticated company.
According to the Maxar press release “a total of 227 holders of common shares of the Company, representing approximately 76% of the Company’s issued and outstanding common shares, voted in connection with the meeting, with 99.8% voting in favor of the U.S. domestication and more than 99.8% of the common shares and LTIP Units voted at the meeting, voting as a single class, voted in favor of the U.S. domestication.”
Commenting on the news Maxar President and CEO Howard Lance said “we are pleased that shareholders overwhelmingly approved our plan for U.S. domestication and we look forward to completing the process by the beginning of 2019. U.S. domestication fulfills a commitment made as part of the acquisition of DigitalGlobe in October 2017 and marks a major milestone in our strategic objectives to gain a stronger presence in the U.S. space and defense markets and enhance our ability to support classified applications for U.S. Government agencies.”
Maxar said it anticipates the U.S. domestication will be completed on or about January 1, 2019.
Maxar went on to say that “following the U.S. domestication effective date, Maxar will continue to list its shares on both the New York Stock Exchange (NYSE) and Toronto Stock Exchange (TSX). Maxar does not anticipate that the U.S. domestication will have any impact on its employees, customers, suppliers, or other key stakeholders. As previously announced, Maxar will transition to U.S. GAAP accounting standards and U.S. domestic securities filings effective with its U.S. domestication. The Company believes this transition will make its financial results more transparent to a wider audience of investors and provide increased comparability with U.S. aerospace and defense peer companies.”
In its third quarter results it was clear that SSL was the business unit that was dragging down the company. Maxar had to take an impairment loss of US$383.6 million as a result.
The other units, MDA, DigitalGlobe and Radiant showed growth.
The majority of financial analysts for their part, still see the upside of the company calling Maxar a buy. RBC Capital in a note to investors believe the stock price drop does was too precipitous. CIBC World Markets however had downgraded their rating to neutral.
SSL’s problems destabilized Maxar’s plan to this year. However, the purpose of creating Maxar was to access the U.S. market and put a together a puzzle of many pieces that could conceivably compete with some of the larger companies.
SSL is being reorganized as a result of a changing marketplace. Maxar recognized the problem and appears to be dealing with it.
MDA, Maxar’s Canadian business unit, and once parent company of what has become Maxar, will now officially be a business unit of a U.S. domesticated company. As I wrote a little over a year ago, context of what this means for MDA in Canada is important.
In 2017 what’s important to understand about MDA and its Canadian roots, is that it’s not going anywhere. As Maxar Technologies, It’s bigger and stronger than it ever was. And that’s because it has a stable U.S. portion of the multinational company now.
Jobs in Canada will depend on how the company grows the business. It’s always been that way. Nothing’s changed in that equation. It’s the same for all businesses. However, growth in Canada will depend in part on what opportunities are available in the domestic commercial, civil and military space sectors. That’s a chapter still to be written.
The downside for MDA is that there still is no Long Term Space Plan in Canada and no new government missions in the pipeline. The good news is that the commercial side appears to be ok, and should the Canadian Combatant Ship program contract get finalized, MDA will see significant growth in Canada. As well, the Canadian Space Agency says they are looking at a follow-on to the RADARSAT Constellation Mission (RCM).
What I said a year ago still stands.
MDA’s path from a large Canadian aerospace company, though smaller on the global stage, to a U.S. domesticated company has been a multi-year journey that’s almost complete.