Since MacDonald Dettwiler struck its $875-million (U.S.) acquisition in late June, investors have treated the company as though it were destined for greatness. In the two-month span from the announcement date to late August, the stock popped 40 per cent, a rarity for the acquirer in a takeover.
But now it seems that investors have realized they may have been a bit overzealous – acquiring the satellite manufacturing subsidiary of Loral Space & Communications can only help so much. Or maybe those who rode the rise are taking some profits off the table. Either way, the stock is down about 10 per cent since peaking on Aug. 24.
This doesn’t mean investors are turning their backs on Canada’s treasured space company; the shares are still up big since the acquisition. But the drop is a reminder that future success isn’t guaranteed.
First there is the issue of the subsidiary’s latest results. Analyst Steven Li at Raymond James notes that for the six months just reported, earnings before interest taxes depreciation and amortization came in at $54-million, versus $75-million last year, as well as management’s expectation of $150-million for the full year.
Mr. Li also notes that there is the chance of a cyclical downturn in satellite orders, which would obviously hurt a division that needs four to five orders a year to be profitable.
Plus, the acquisition still hasn’t been blessed with the necessary regulatory approvals. Not that these should be a huge problem, but you just never know.