Maxar Technologies MAXR
Maxar's MDA-DigitalGlobe merger masks a collapsing satellite cycle and the most aggressive accounting Spruce Point has ever seen, leaving 5.8x-levered MAXR with 100% downside risk.
Thesis
Maxar Technologies — formed by MDA's 2017 acquisition of DigitalGlobe — is the cover-up vehicle for MDA's failed 2012 levered acquisition of Space Systems Loral, taken on at the peak of a now-collapsing geostationary satellite cycle. Spruce Point's forensic review finds Maxar inflating Non-IFRS EPS by 79% and EBITDA by 17% through excessive capitalization of intangibles, $1.1bn of intangible inflation at deal close, and one-time post-retirement gains buried in EBITDA. CEO Howard Lance, hidden from his bio, previously oversaw NCR and Harris Stratex — both of which later required restatements — and CFO McCombe abruptly resigned days before the March 2018 Investor Day. With $3.7bn of credit-adjusted debt, 5.8x adjusted leverage breaching covenant, organic revenue down 12.7%, and a $227m Ukraine arbitration claim, Spruce Point sees MAXR's $0-$50m of free cash flow rendering the equity worthless on a base case, with an intermediate price target of $20-$25 (45-55% downside).
SCQA
Maxar Technologies is the rebranded entity formed by Canadian satellite manufacturer MDA's 2017 acquisition of imagery provider DigitalGlobe, trading on NYSE/TSX with a $2.6bn market cap and $5.8bn enterprise value at $44/share.
MDA was already strained by its 2012 levered acquisition of Space Systems Loral at the satellite cycle peak; the DigitalGlobe deal was a cover-up vehicle enabling aggressive intangible-asset capitalization that inflated Non-IFRS EPS by 79%.
CEO Howard Lance should resign for inflating earnings and concealing his track record; Maxar must immediately eliminate its $68m dividend and direct capital toward debt reduction before the 5.5x covenant is breached.
Base-case downside of 45-55% to a $20-$25 share price using peer-discounted multiples on adjusted EBITDA/EPS; on free cash flow, MAXR could be worthless — full 100% downside to zero given $3.7bn credit-adjusted debt and minimal cash generation.
The three reasons
- 1
MAXR's Non-IFRS EPS inflated 79% via aggressive intangible-asset capitalization and acquisition accounting
- 2
CEO Howard Lance has prior ties to two companies later requiring financial restatement
- 3
Adjusted leverage of 5.8x breaches the 5.5x covenant; dividend funded by borrowing
Primary demands
- CEO Howard Lance should resign
- Eliminate the dividend immediately and redirect cash to debt reduction
- Restate inflated Non-IFRS EBITDA and EPS metrics
KPIs cited
Pattern membership
Precedents cited
- NCR Corp (Spruce Point 2015 short — 40% decline)
- Harris Stratex / Aviat Networks (Lance prior chairmanship requiring restatement)
- Change Healthcare Holdings (Lance prior chairmanship)
- Intertain (Spruce Point Canadian short — 42% decline)
- TSO3 (Spruce Point Canadian short — 81% decline)
- Just Energy (Spruce Point Canadian short — 51% decline)
Composition what's on the 68 slides
Slide gallery ·
Notes
Classic Spruce Point short report — opens with dramatic 'satellite exploding over Earth' cover and 'Falling Out of Orbit to Zero' tagline. Strong forensic-accounting argument leveraging MDA's pre-merger filings to expose intangible-asset capitalization abuse. Heavy use of pattern-matching to NCR Corp (prior Spruce Point campaign) where current CEO Lance was COO. Stake size not disclosed beyond 'short position' in standard disclaimer. Precedent-citing tactic doubles as track-record marketing (Spruce Point's prior wins). Functional institutional design — readable but not editorially polished; chart-heavy.