Chinese bidder back on track to buy Norsat after matching U.S. offer

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A Vancouver satellite firm at the centre of a controversy over the Trudeau government's handling of Chinese investment in sensitive sectors is now facing matching bids from both China and the United States.

And Norsat International is telling shareholders that it wants to accept the acquisition offer from Hytera Communications Corp. of Shenzen, China, rather than Atlanta-based Privet Fund Management LLC.

In a statement Friday, Norsat said Hytera has matched Privet's $11.50 (U.S.)-a-share offer and that Norsat directors recommend proceeding with an acquisition by Hytera. Norsat did not explain why it favours Hytera's bid over Privet's.

Read more: Liberals waive security review for Chinese takeover of high-tech firm

Read more: Trudeau mum on what U.S. said about Chinese takeover of Norsat

The Liberal government has come under fire in recent days for green-lighting the sale of Norsat International Inc. to Hytera, a Chinese telecom giant, without conducting a formal, comprehensive, national-security review of the deal.

Hytera is facing a lawsuit from U.S. rival Motorola, which accuses the Shenzhen-based firm of massive intellectual property theft.

A key member of a U.S. congressional watchdog agency has already warned the Norsat deal jeopardizes U.S. national security and two former directors of the Canadian Security Intelligence Service (CSIS) have weighed in, saying the transaction should have been subjected to a full-scale security review.

Earlier this week in Question Period, Prime Minister Justin Trudeau rejected opposition demands to divulge whether Washington raised security concerns about the deal. Reading from a prepared script, Mr. Trudeau said the government had merely accepted the advice of federal security experts.

"We take the advice and feedback from our national security agencies very seriously, and based on that advice we proceeded with [approval of] this transaction," he told MPs. "In this particular case, our security agencies did consult with key allies, including the United States."

At one point during heated exchanges, Mr. Trudeau suggested the United States and other allies had signalled their approval of the takeover, but quickly backtracked, insisting national-security agencies had not recommended a comprehensive security review of the Norsat deal after consultations. In defending the decision to green-light the Norsat transaction, the Prime Minister also accused the opposition of undermining civil servants in charge of national security.

At one point this week Mr. Trudeau said Norsat was subject to a full national-security review. However, that assertion was contradicted by the testimony of two top security officials Monday. Jeff Yaworski, the acting director of CSIS, and Malcolm Brown, the deputy minister of public safety, told a Commons committee that the Investment Canada Act calls for preliminary security screenings, not national security reviews, of all foreign takeovers. The Prime Minister then abandoned this position.

The decision to conduct a national-security review – which examines the impact on Canada's economic and defence interests – is made by the federal cabinet, they testified.

The U.S.-China Economic and Security Review Commission, which reports to Congress, told The Globe on Monday that "the U.S. military and other domestic clients of Norsat should immediately review their purchases as well as the exposure they have to existing products from the company they use, to determine what security risks might arise."

Michael Wessel, a member of the commission, told The Globe and Mail that "the sale of Norsat to a Chinese entity raises significant national-security concerns for the United States as the company is a supplier to our military."

He said the Liberals appear to be willing to sacrifice national-security interests of Canada's most important ally in exchange for obtaining a bilateral free-trade deal with China. He also urged the Pentagon to "immediately review" its dealings with Norsat.

The Liberals have made closer ties to China – including a potential free-trade deal – a cornerstone of its foreign policy. However, China has publicly criticized Canada's national-security reviews as protectionism and demanded they be part of the free-trade talks.

Since the Liberals came to power, they have been much more open than the previous Conservative government to investment from China in a number of key sectors.

In February, Ottawa approved the sale of one of British Columbia's biggest retirement-home chains to a Beijing-based insurance titan with a murky ownership structure, giving China a foothold in Canada's health-care sector.

In March, the government approved a Chinese takeover of a Montreal high-tech firm, ITF Technologies – the very same transaction that had been blocked by the Conservative government after it became convinced the deal would undermine a technological edge that Western militaries have over China. At the time, CSIS had recommended against the takeover, saying the ITF technology transfer would give China access to "advanced military laser technology" and would diminish "Canadian and allied military advantages."

When Hytera made a bid this year for Sepura, a mobile digital-radio equipment maker in Britain, the British government conducted a national-security review and imposed strict stipulations.