Alliant Tech says major acquisitions not attractive

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.

The chairman of BAE's US unit, Mark Ronald, was appointed to ATK's board last year, prompting speculation BAE might seek closer ties with ATK, defense analyst Francis Tusa said.

Such a move, he said, would likely draw a US counter-bid for ATK, which makes sensitive missile technologies and other hardware and is the biggest maker of bullets for the U.S. Army.

CORE BUSINESS

Born from Honeywell's defense unit in 1990, Minneapolis-based ATK has sales of $4.5 billion, split between ammunition, mission systems such as warheads and warning systems and space hardware from rockets to small satellites. It bought components maker Swales Aerospace last year.

"Our strategy is to build out our core business," Murphy said. "Our focus is small satellites and extensions of advanced weapons and electronics."

At the world's largest air show this week, ATK announced it would team up Northrop Grumman (NOC.N) and Lockheed Martin (LMT.N) to explore new multi-role missiles for aircraft such as Lockheed's F-35 Joint Strike Fighter.

ATK says it also is responding to perceived new threats to military satellites by developing low-cost, small satellites that can be placed in orbit with as little as 72 hours' notice.

"If you have assets blinded, you want to be able to replace at least a portion quickly and it is less costly than defending them," Murphy said.

Washington criticized China for downing one of its disused satellites in a missile test in January 2007. Russia and China expressed concerns when the U.S. shot down the toxic fuel tank of a defunct satellite earlier this year. Washington said the only aim of the strike was to prevent hazards to humans.

With its focus on affordable and specialist projects, ATK, which says it was ranked 14th largest U.S. defense company by Defense News, hopes mainly to escape the axe of defense cuts.

Murphy, a former Navy gunnery officer who reached the rank of Vice Admiral, said he did not expect major alterations to the budget as a result of the U.S. presidential election.

"There is no correlation (between spending and the party in power," he said. "It is all to do with what is going on in the world. We are going to see the defense spending we need to get the job done, but the priorities could change."

(editing by Carol Bishopric)