- The Washington Times - Monday, July 16, 2001

Foreign competition did not cause Orbital Sciences Corp.'s current woes, but foreign suitors did help the Sterling, Va.-based company regain its footing, highlighting the expanding role international firms are playing in the American merger and acquisition market.
Orbital, a manufacturer of satellites, launch vehicles and space sensors, lost more than $200 million last year and has been on a "back-to-basics" crusade by selling off assets not related to its core business.
It shopped around parts of the company, and three foreign buyers from Canada, Britain and France eventually agreed to take them off Orbital's hands.
"We didn't go out marketing [these parts of Orbital's business] to international firms," says Barron Beneski, the company's director of communications. "It just happened that way."
Orbital is not alone. Executives of foreign companies are storming through Washington and other parts of the country like bargain hunters at a discount store. The collapse of the technology sector and overall stock declines are turning many U.S. businesses into supple targets for acquisition.
Foreign companies' purchases in the United States rose significantly in 2000 over 1999, according to Los Angeles-based Mergerstat, which tracks merger and acquisition activity.
In 2000, deal makers wrapped up cross-border transactions worth $310.6 billion, up 14 percent from $272.5 billion in international deals in 1999.
"I think foreign buyers are much more interested in U.S. firms now than a year ago," says Phil Facchina, senior managing director for technology and growth at Arlington-based Friedman Billings Ramsey. "I hear a lot of chatter about foreign companies looking in the area."
Equally striking, according to Mergerstat, was that U.S. companies spent less overseas, with their purchases declining nearly 17 percent to $133.7 billion from $160.8 billion in the same period.
The Washington area has seen 28 companies or parts of companies sold to foreign buyers in the first half of the year. Some have garnered considerable attention. South Africa's Dimension Data Holdings in May swallowed up Reston-based Proxicom, once a pillar of Northern Virginia's technology sector, in a $378 million deal.
In 1998, the Netherlands' Royal Ahold NV paid $2.7 billion for a piece of Landover-based Giant Food Inc. Last year, it beefed up its presence in the U.S. restaurant food supply business with its $3.6 billion purchase of U.S. FoodService of Columbia, Md.
Foreign buyers have a host of reasons for buying right now, ranging from business survival to sheer opportunism. Driving the acquisitions, analysts say, are low stock prices that make purchases in the American market a bargain. And the fire sale may not be over.
Foreign acquisitions in the Washington area, particularly of government contractors and technology companies, should pick up later in the year, says Robert Kipps, of the McLean office of Houlihan Lokey Howard & Zukin, an investment bank.
The key factor right now: Investors, foreign and domestic, do not yet believe that the stock market has hit bottom, holding out the prospect of even cheaper acquisitions once the bear market runs its course.
"Once the perception of market volatility evaporates, then more deals will go through," Mr. Kipps says. "Over the next six months you will see this international activity pick up."
Beneath the headlines of major deals involving Proxicom and Giant, there are many companies like Orbital that have been entertaining foreign suitors.

Saving Orbital

Orbital has struggled in the past two years as it strayed from its core business of developing satellite-related technology. Last year, it lost $228.2 million during a downsizing, and saw its stock get hammered from more than $18 per share to around $3.
Acquisitions of parts of Orbital's business by three foreign companies in the past nine months netted $339 million and will help it avoid a cash crunch this year, Chief Executive Officer David Thompson said in a statement.
In October, Orbital announced the sale of the first piece of its business, Fairchild Defense, an electronics manufacturer, to the U.S. unit of Smiths Industries. The British defense contractor paid $100 million for Fairchild.
Seven months later, Orbital sold its satellite navigation and positioning businesses, Magellan and NavSol, to France-based Thales Group, a huge electronics producers with $7.5 billion in sales last year, for $70 million.
The Thales purchase highlighted a central reason why foreign companies look to the United States, especially during a downturn. Thales already had navigation businesses in Europe and Asia but lacked an American presence, something that would have cost much more than $70 million to put together from scratch, the company said.
"This acquisition will strengthen the group's presence in international markets and make it one of the top three suppliers worldwide," says John Hughes, head of the Thales information technology business.
In the middle of this month, Orbital will complete the sale of MacDonald, Dettweiler and Associates Ltd., a Canada-based subsidiary that Orbital has "repatriated" by selling it to a group of Canadian investors.

Cash matters

Cash is a major reason why foreign companies have considerable leverage when they go hunting for bargains in the United States, according to Mr. Facchina.
"Foreign buyers seem to be pretty inclined to pay cash," he says. "And U.S. investors like that."
Foreigners use cash, he explains, because they have to. Using stock swaps, a more common practice for purely domestic transactions, would leave American investors holding stocks that are traded only on exchanges in London, Paris and Frankfurt, not the familiar Nasdaq, a leap that many Americans are unwilling to take.
Cash is also especially persuasive when foreign companies are competing against cash-poor Internet companies from the United States.
New York-based NetCreations Inc., a company that Mr. Facchina's firm advised, had an offer in October from DoubleClick Inc., an Internet advertising firm, to be acquired for $191 million in stock.
But SEAT Pagine Gialle, an Italian online publisher, ultimately purchased NetCreations, an e-mail marketing firm, for $120 million because SEAT paid cash for the American company, Mr. Facchina points out.
Falling tech stocks, while the source of much heartburn for investors, are luring foreign companies into purchasing U.S. companies.
The acquisition of Proxicom, which saw its stock dip below $4, is the best example of this trend, Mr. Kipps says.
"Proxicom had problems, but it also had a great franchise," he says.
Foreign companies have also joined in on what has become a Washington pastime: scavenging the last bits of meat from the carcass of Ashburn, Va.-based PSINet Inc., which declared bankruptcy on June 1.
A Canadian firm, Telus Corp., picked up PSINet's Canadian operations. That sale injected $77 million into PSINet's ongoing reorganization. PSINet also sold off its operations in Argentina, Mexico, Brazil, Uruguay and Panama.
"PSINet's foreign operations have always been attractive assets," says David Takata, an analyst with Gerard Klauer & Mattison, a New York-based research firm.

Symbiotic relationship

Foreign purchases of U.S. firms seem to raise fewer eyebrows these days as technology and surging economic fortunes have helped to blur national borders. There has been a steady change in attitude from the late 1980s, when acquisitions by Japanese companies in the United States sparked near-hysterical fears about the hollowing out of the American economy.
Part of the change has been in Americans' portfolios: they own more shares of foreign companies, so they have a greater stake in their success, whether in the United States or elsewhere in the world, according to the Organization for International Investment, which represents foreign multinationals active in the United States.
Economists often speak of a "domestic bias" the tendency of Americans to prefer stocks in U.S. companies. James Glassman, a scholar with the American Enterprise Institute, authored a study on the symbiotic relationship between American stockholders and foreign companies.
Mr. Glassman tracked the 100 foreign companies with the highest sales in the United States and found that Americans own over 20 percent of these firms.
The list includes well-known companies such as Britain's BP, Canada's Nortel Networks, France's Michelin, Finland's Nokia and Sweden's Ericsson. All of them are over 30 percent American-owned.
Todd Malan, the executive director of the investment group, draws a simple conclusion from the study, one that will likely remain relevant as foreign acquisitions multiply: "We are them."

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