Alliant Tech says major acquisitions not attractive

By Tim Hepher

FARNBOROUGH (Reuters) - U.S. rocket maker Alliant Techsystems (ATK.N) aims to expand in space systems, advanced weapons and electronics but is shunning big acquisitions after its bid for a Canadian defense business failed.

Chairman and Chief Executive Daniel Murphy said he was disappointed by Canada's decision in April to block the purchase, but ruled out a major alternative deal amid what he saw as bloated valuations sought by rival defense companies.

"I was very disappointed by the politically charged atmosphere in Canada."

The Canadian government blocked the $1.3 billion sale of sensitive satellite technology to ATK in part because it feared it might lose control over top-secret images. It was the first time Ottawa had prevented a foreign takeover.

Critics had said the proposed sale of a unit of MacDonald Dettwiler and Associates would threaten Canadian sovereignty by handing the high-tech Radarsat 2 satellite to foreigners.

"We had a specific reason for our interest in MDA. My sense is it was the right outcome because if there was any doubt from the government, which has control of licenses, then our value proposition was significantly damaged," Murphy said.

He was speaking in an interview at the Farnborough Airshow.

The deal failed at a time when European firms have encroached into the U.S. defense industry, though at a price many analysts regard as high, bolstering shares in the sector.

"For us a major acquisition is not attractive," Murphy said. "The prices companies are expecting bears no relation to market value. Companies still want 10, 12, 15 times EBITDA (earnings before interest, tax, depreciation and amortization). We are not going to pay that."

In May, U.S. defense electronics company DRS Technologies DRS.N agreed to be bought by Italy's Finmeccanica in a $5.2 billion deal the participants valued at 11.4 times EBITDA.

Murphy said he supported foreign acquisitions provided U.S. interests were protected but did not see unlimited scope.

"It is important the US has available the best capabilities at the best value... For Finmeccanica to gain approval, and nobody questions that they will get it, that is a significant step. DRS has some significant technologies."

Until now most foreign expansion into the lucrative U.S. defense market has come from Britain's BAE Systems (BAES.L), reflecting close strategic ties between the two nations.

Franco-German-led EADS (EAD.PA), which makes the Eurofighter warplane and Airbus passenger jets, is also looking for a piece of the world's largest defense market.

"BAE has been a very aggressive player. People look at their track record and say they know what they are doing. EADS will be next," Murphy said. ATK is working with Airbus on researching composite stiffeners or ribs for the civil A350.