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While some regulatory approvals will be needed, the sale of Com Dev International – which makes specialized equipment for satellite contractors and government space agencies – will not have to meet the ‘net benefit’ requirements in the Investment Canada Act.Getty Images/iStockphoto

The U.S. takeover of Canadian satellite equipment maker Com Dev International Ltd. will not face the same government scrutiny that halted the sale of MacDonald Dettwiler and Associates Ltd.'s (MDA) space division in 2008.

Last week, publicly traded Com Dev, based in Cambridge, Ont., announced it will sell its space hardware business to technology giant Honeywell International Inc. for about $455-million. That means most of its operations – which makes specialized equipment for satellite contractors and government space agencies – will soon be owned by an American parent.

It won't sell an arm that markets ship-tracking information gathered from Com Dev's own satellites. That division, called exactEarth Ltd., will be spun off into a separate company partly owned by current Com Dev shareholders.

While some regulatory approvals will be needed, Com Dev says the sale will not have to meet the "net benefit" requirements in the Investment Canada Act. That's because the value of the deal falls under the current threshold for review, which is an enterprise value of $600-million.

That threshold was changed in April from $369-million in book value. In April, 2017, it rises to $800-million, and as of April, 2019, no transaction with an enterprise value of less than $1-billion will be subject to the net benefit review. (The rules are different for acquisitions by state-owned enterprises.)

Seven years ago, it was those net benefit rules that the Conservative government used to block the sale of MDA's space arm, which was to be sold to Minnesota-based Alliant Techsystems Inc. for $1.3-billion. That unprecedented move was prompted partly by concerns that the technology in the Radarsat-2 remote-sensing satellite, which tracks Canada's Arctic, would fall into U.S. hands. The satellite was developed by MDA with federal funds.

Then-industry minister Jim Prentice and then-prime minister Stephen Harper said they were protecting Canada's economy and sovereignty by stopping the deal.

At the time, one of the loudest voices supporting a rejection of the MDA deal was the Rideau Institute, an Ottawa-based foreign policy think tank. Steven Staples, Rideau's vice-president, said Monday he is now worried about Com Dev falling into foreign hands.

"I am concerned that the threshold was raised and this passed under it," Mr. Staples said. "Anything of significance – and this would certainly be significant – should be reviewed at the very least." The problem with the net-benefit threshold, he said, is that it looks at the value of a sale rather than its importance to employment and technology. "The Trudeau government should push the pause button on this."

Michael Byers, a political science professor at the University of British Columbia, noted Com Dev has worked as a contractor on Canadian government projects such as the Sapphire military satellite that was launched in 2013.

Prof. Byers didn't fault Com Dev for signing the sales deal, since having U.S. ownership would likely allow it to more easily win U.S. military contracts. But Ottawa should at least be able to review the transaction, he said, and perhaps consider ways to ensure the company is successful while maintaining Canadian ownership. "This is precisely the kind of economic activity that a serious developed country wants to have," he said.

Com Dev chief executive officer Mike Pley said in an interview Monday that his company's sale is "decidedly different" from that of MDA, because nothing like Radarsat is involved. He also said Honeywell's deep pockets will help accelerate growth at Com Dev. While Honeywell has not made any promises about keeping work in Canada, "you can't pick up the expertise of a space manufacturing company and just move it anywhere," he said.

While it doesn't need Investment Canada's nod under the net benefit test, the Com Dev sale does need approval under the Competition Act in Canada and the Hart-Scott-Rodino Act in the United States. The exactEarth spinoff has to get Industry Canada approval because the firm owns spectrum licences.

Mr. Pley said he is "relatively comfortable that the regulatory review is going to go reasonably smoothly."

Com Dev was founded in the 1970s by Irish-born entrepreneur Val O'Donovan. The firm, which went public in 1996, has operations in England, the United States, India and China, and generated revenue of $208-million in 2014. It employs about 1,250 people.

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