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MacDonald Dettwiler Moves to Sell Some Assets By ANDY PASZTOR Canada's MacDonald Dettwiler & Associates Ltd. has put its surveillance and space businesses on the block, according to people familiar with the details. Yet, while the assets are attractive because they fit with the Pentagon's new directives for developing smaller, nimbler satellites, potential buyers are balking at the roughly $1 billion asking price. Four large U.S. defense contractors, including Lockheed Martin Corp. and Raytheon Co., have expressed interest and engaged in preliminary acquisition discussions, these people said. At this point, they have opted against making a formal bid after concluding the asking price was too high. The other two companies that kicked the tires are Northrop Grumman Corp. and Alliant Techsystems Inc., according to people familiar with the situation. The four companies declined to comment; MacDonald Dettwiler said it doesn't comment on speculation. The moves indicate that pressures continue to build for further consolidation among defense subcontractors, particularly in certain niches affecting space programs pinpointed by Pentagon planners. Only a few days ago, Alliant Techsystems completed its acquisition of closely held Swales Aerospace, an established maker of components for simpler, less-costly satellites. The Pentagon has been pushing to develop smaller, less-expensive satellites and other space projects. MacDonald Dettwiler, based in Richmond, British Columbia, fits into this "operationally responsive space segment" because it makes sensors, small satellites, robotic devices, parts of earth-imaging systems and other high-tech space hardware. Pentagon budgets for such projects are still tiny compared with the multibillion dollar prices of larger, more-conventional satellite fleets, but prime contractors increasingly are maneuvering to organize internal assets or snare others in the event the initiative takes off. For example, Brian Arnold, a senior Raytheon space executive, said in a recent interview that Raytheon officials were seeking to "position ourselves for when somebody gets serious about" funding lighter, more-versatile space systems. He didn't refer to MacDonald Dettwiler. With share prices of many second- and third-tier defense suppliers at or near record highs, the discussions also indicate that at this point, larger suitors are leery of striking quick deals to acquire such assets. It isn't clear whether MacDonald Dettwiler's board wants to sell the entire company, which has about 3,000 employees. MacDonald Dettwiler shares rose 24 Canadian cents to C$43.90 ($41.15) yesterday on the Toronto Stock Exchange. In addition to space and defense operations, MacDonald Dettwiler provides data and information services for real estate and government customers. In the quarter ended March 31, the company reported net income of $21.3 million on $306.2 million in sales. The focus on developing smaller space projects previously prompted both the Pentagon and Congress to shake up traditional defense-procurement procedures. A special Air Force office has been established to coordinate such programs, with a primary goal of finding ways to supplement or replace in-orbit satellites if they malfunction or are attacked. About $350 million has been earmarked for such projects over the next five years, but Joseph Rouge, a senior Air Force space planner, recently told an industry conference that the funding is likely to increase. Write to Andy Pasztor at [e-mail]