Comtech Telecommunications Corp. (Nasdaq: CMTL) (“Comtech”) and
Gilat Satellite Networks Ltd. (Nasdaq: GILT; TASE: GILT) (“Gilat”)
jointly announced today that Comtech has agreed to acquire Gilat in
a cash and stock transaction for $10.25 per Gilat ordinary share of
which 70% will be paid in cash and 30% in Comtech common stock,
resulting in an enterprise value of approximately $532.5 million.
Founded in 1987 with its headquarters in Israel, Gilat is a
worldwide leader in satellite networking technology, solutions and
services with market leading positions in the satellite ground
station and in-flight connectivity solutions markets and deep
expertise in operating large network infrastructures.
Based on Comtech’s fiscal year 2019 actual
results and Gilat’s trailing twelve-month results through June 30,
2019, on a pro-forma basis, Comtech would have reported
approximately $926.1 million of revenue with Adjusted EBITDA of
approximately $130.2 million (see definition and reconciliation to
GAAP financial measures in the table below). The combined companies
would employ approximately 3,000 people and offer best-in-class
satellite technology, public safety and location technology and
secure wireless solutions to commercial and government customers
around the world.
Fred Kornberg, Chairman of the Board and CEO of
Comtech, said, “I am excited to have reached this agreement with
Gilat and believe this combination is beneficial to the
stakeholders of both companies. The acquisition better positions
Comtech to take advantage of key marketplace trends, particularly
the growing demand for satellite connectivity and the enormous
long-term opportunity set that is emerging in the secure wireless
communications market. I believe that the combination of
accelerating satellite connectivity demand and the increasing
availability of low-cost satellite bandwidth, makes this a perfect
time to unify Comtech and Gilat’s solutions and offer our combined
customers best-in-class platform-agnostic satellite ground station
technologies. Gilat is an exceptional business that has developed
extraordinary technology and has a well-respected product portfolio
supported by strong research and development capabilities. I
welcome Gilat’s entire talented workforce to the Comtech
family.”
Dov Baharav, Chairman of the Board of Gilat,
said, “The Gilat Board of Directors and management believe this
highly strategic combination is compelling. It is an excellent
outcome for our shareholders who receive both cash and an equity
interest in a strong company with a broader range of products and
the benefits of combined expertise and resources that is well
positioned to create future value against a highly favorable
industry backdrop. I have long admired Comtech’s commitment to
technology leadership and I firmly believe that employees will have
expanded opportunities for career development. No doubt, the future
will be very bright for Comtech and Gilat and all of our
stakeholders.”
Key Strategic Benefits for
Comtech Include:
- Drives global market access by
creating a world leader with combined pro-forma sales approaching
nearly $1.0 billion annually;
- Strengthens Comtech’s position as a
leading supplier of advanced communication solutions, uniquely
capable of servicing the expanding need for ground infrastructure
to support both existing and emerging satellite networks;
- Expands Comtech’s product portfolio
with highly complementary technologies, including Gilat’s
high-performance TDMA-based satellite modems and its next
generation solid-state amplifiers;
- Broadens leadership position in the
rapidly growing in-flight connectivity and cellular backhaul
markets which are expected to expand given the availability of
lower-cost bandwidth and the adoption of satellite technologies
into the 5G cellular backhaul ecosystem;
- Bolsters world-class research and
development capabilities, enabling Comtech to offer customers more
complete end-to-end technology solutions;
- Enhances ability to accelerate
shareholder value creation by contributing to Comtech’s ongoing
strategy to move toward higher margin solutions and by increasing
customer diversification geographically and by market; and
- Potentially offers increased
liquidity for existing and new Comtech shareholders, as Comtech
plans to pursue a dual listing on the Nasdaq and Tel Aviv Stock
Exchange (“TASE”) to become effective upon the closing of the
transaction.
Acquisition Expected to be Cash
Accretive and Have Minimal Integration
RisksExcluding the impact of acquisition plan
costs (including transaction expenses) and with conservative
anticipated synergies of only $2.0 million derived from the
elimination of Gilat’s public company costs, the acquisition of
Gilat is expected to be cash accretive to Comtech during the first
twelve months post-closing. Comtech believes that with careful
planning and execution, it can capitalize on opportunities to
achieve both sales growth and further efficiencies during the
second-year post-closing.
Both companies’ talented global workforces are
expected to remain in place and focus intently on meeting all
customer commitments and expectations, including supporting all
existing products, services and agreements. The transaction
enlarges Comtech’s global market footprint with a significant
physical presence in key international markets. This increased
presence addresses a growing need for local touch points that can
offer integrated secure connectivity solutions including public
safety and location solutions. At the same time, Gilat will gain
access to Comtech’s strong relationships with the U.S. government,
allowing expanded distribution of Gilat’s products and solutions to
the U.S. government. As such, Comtech believes the transaction
carries minimal integration risk while creating numerous
opportunities for potential long-term revenue and efficiency
synergies going forward.
Comtech will continue to emphasize capturing
growth opportunities from favorable market trends, including:
expected increased demand for solutions to provide high speed
in-flight satellite connectivity; the adoption of new satellite
ground station technologies into the 5G cellular backhaul
eco-system; and the expected need for equipment and network
upgrades to accommodate an anticipated increase in satellite
capacity when new Very High Throughput Satellites (“VHTS”) and high
capacity Medium Earth Orbit (“MEO”) and Low Earth Orbit (“LEO”)
satellite constellations are launched and fully operational.
Together with its previously announced pending acquisition of UHP
Networks, Comtech believes it will be uniquely positioned to take
advantage of these important trends.
Gilat announced on November 19, 2019 that it
expects to achieve sales of between $260.0 million and $270.0
million with Adjusted EBITDA ranging from $38.0 million to $42.0
million for its fiscal year ended December 31, 2019. Comtech
announced on December 4, 2019 that it expects to achieve sales of
between $712.0 million and $732.0 million with Adjusted EBITDA
ranging from $99.0 million to $103.0 million for its fiscal year
ending July 31, 2020. Neither Comtech nor Gilat is revising their
previously announced respective fiscal year financial
outlook.
In light of the agreement between Comtech and
Gilat, Gilat has cancelled its fourth quarter and fiscal 2019
year-end conference call and webcast previously scheduled for
February 19, 2020. Once the transaction closes, Comtech will
provide combined revenue, Adjusted EBITDA and diluted earnings per
share guidance in a future announcement.
Leadership and Business
StructureFred Kornberg, Comtech’s Chairman of the
Board and Chief Executive Officer (“CEO”) will continue in his role
as CEO of the combined company. Michael Porcelain, Comtech’s
Chief Operating Officer, who was promoted and named President of
Comtech earlier today, will work hand-in-hand with both Comtech and
Gilat employees to maximize the potential of the combined company.
Michael Bondi will continue in his role as Chief Financial Officer
(“CFO”) of the combined company. Comtech will continue to maintain
its headquarters in Melville, New York.
Post-closing of the transaction, Gilat will
become a wholly owned subsidiary of Comtech and will maintain its
well renowned and highly regarded brand. Gilat will continue to
maintain its corporate headquarters and research and development
facility in Petah Tikva, Israel under the leadership of Yona
Ovadia, Gilat’s CEO and Adi Sfadia, Gilat’s CFO. Mr. Sfadia will
also be assuming the role of Gilat’s Chief Integration Officer,
helping to plan a smooth acquisition and to maximize shareholder
value.
No Comtech or Gilat facility locations are
expected to be closed as a result of the transaction and each key
business area is expected to continue to be led by its respective
existing proven leadership teams after the transaction closes.
Transaction Structure and
TermsUnder the terms of the agreement,
unanimously approved by both companies’ Board of Directors, Gilat
shareholders will receive total consideration of $10.25 per share,
comprised of $7.18 per share in cash and 0.08425 of a share of
Comtech common stock for each share of Gilat held.
The total consideration of
$10.25 represents a premium of approximately
14.52% to Gilat’s 90-day volume-weighted average
trading price.
Upon completion of the transaction, Gilat’s
shareholders will own approximately 16.1% of the combined
company.
Financing and Acquisition Plan
ExpensesAs of September 30, 2019, Gilat had approximately
$53.1 million of unrestricted cash and cash equivalents with debt
of approximately $8.2 million. As of October 31, 2019, Comtech had
approximately $46.9 million of cash and cash equivalents and debt
of approximately $169.0 million.
Comtech expects to fund the acquisition and
related transaction costs by redeploying a portion of the $100.0
million of pro forma combined cash and cash equivalents plus
additional cash expected to be generated prior to closing, and by
drawing on a new $800.0 million secured credit facility to be
provided by Citibank, N.A., Manufacturers and Traders Trust Company
(“M&T Bank”), Santander Bank, N.A., BMO Harris Bank, N.A.
(“Bank of Montreal”), Regions Bank, Israel Discount Bank of New
York and Goldman Sachs Bank USA. Comtech expects that the cash
interest rate on this facility will approximate 4.0% to 5.0% on an
annual basis, before any origination fees. Furthermore, Comtech
expects the terms of the facility will be based on a net leverage
ratio providing significant flexibility. The exact terms of the
credit facility will be finalized at or prior to the closing of the
acquisition.
On a pro forma basis including preliminary
estimated combined acquisition plan expenses of approximately $27.0
million, the repayment of Gilat bank debt and funding of Comtech’s
other pending acquisitions, Comtech would have approximately $45.0
million of unrestricted cash at closing with total net debt of
approximately $500.0 million or net leverage of 3.85x. Total net
debt is expected to decrease quickly and significantly. Based
on expected strong cash flows to be generated from the combined
businesses, net leverage twelve months after closing will decrease
to approximately 3.00x.
Comtech expects that it will maintain its annual
targeted dividend of $0.40 per share.
In connection with the acquisition of Gilat,
Comtech expects to incur acquisition plan expenses (including
professional fees for financial and legal advisors and debt
refinancing costs). Some of these expenses are expected to be
immediately expensed both prior to and upon closing, another
portion expensed during the first year following the closing and
the balance capitalized. Pursuant to accounting rules, the
acquisition is expected to result in a material increase in annual
amortization expense related to intangibles and other fair value
adjustments.
Shareholder Support and Closing
ConditionsGilat’s directors, executive officers
and certain significant shareholders holding approximately 45% of
Gilat’s issued and outstanding shares in the aggregate have entered
into voting agreements pursuant to which they have agreed, subject
to certain terms and conditions, to vote in favor of the
transaction. In the upcoming weeks, Gilat will call for an
Extraordinary General meeting of Shareholders to vote on the
merger. The transaction requires the affirmative vote of the
holders of a majority of the ordinary shares present (in person or
by proxy) at the meeting and voting on such matter (including
abstentions and broker non-votes).
The transaction is subject to customary closing
conditions (including, among others, the approval of Gilat’s
shareholders and expiration of the applicable waiting period under
the Hart-Scott Rodino Antitrust Improvements Act of 1976) and the
transaction is expected to close late in Comtech’s fiscal year 2020
or the first part of its fiscal 2021. No approval by Comtech
stockholders is required and the consummation of the transaction is
not subject to any financing condition.
Conference Call, Investor
Presentation and Other InformationComtech’s
management will discuss the transaction in more detail at a special
conference call and live webcast scheduled for this morning
(January 29, 2020) at 8:00 AM U.S. ET. Dov Baharav, the
Chairman of the Board of Gilat will also join the call.
Investors are invited to access a live webcast
of the conference call from the Investor Relations section of
the Comtech web site at www.comtechtel.com.
Alternatively, investors can access the conference call by dialing
(800) 791-4813 (domestic) or (785) 424-1102 (international) and
using the conference I.D. of “Comtech” or “2668324.” A replay of
the conference call will be available for 30 days by dialing (800)
839-5484 or (402) 220-1522. An online archive of the webcast will
be available on the Investor Relations section of Comtech’s web
site for at least 30 days following the call. A separate investor
presentation relating to the acquisition is available at
www.comtechtel.com.
AdvisorsGoldman Sachs and Co.
LLC is serving as an exclusive financial advisor to Comtech.
Proskauer Rose LLP and Goldfarb Seligman & Co. are acting as
Comtech’s legal counsel. Alnitak & Co. Inc., Jefferies LLC and
Quilty Analytics LLC are serving as financial advisors to Gilat.
Naschitz Brandes Amir & Co. is acting as Gilat’s legal
counsel.
Additional Information and Where to Find
ItThis press release is being made in respect of a
proposed business combination involving Comtech and Gilat.
This press release does not constitute an offer to sell or the
solicitation of an offer to buy or subscribe for any securities or
a solicitation of any vote or approval nor shall there be any sale,
issuance or transfer of securities in any jurisdiction in which
such offer, solicitation or sale would be unlawful prior to
registration or qualification under the securities laws of any such
jurisdiction. The proposed transaction will be submitted to the
shareholders of Gilat for their consideration. Comtech intends to
file with the U.S. Securities and Exchange Commission (the “SEC”) a
Registration Statement on Form S-4 that will include a preliminary
prospectus with respect to Comtech’s common stock to be issued in
the proposed transaction and a proxy statement of Gilat in
connection with the merger of an indirect subsidiary of Comtech
with and into Gilat, with Gilat surviving. The information in
the preliminary proxy statement/prospectus is not complete and may
be changed. Comtech may not sell the common stock referenced in the
proxy statement/prospectus until the Registration Statement on Form
S-4 becomes effective. The proxy statement/prospectus will be
provided to Gilat shareholders. Comtech and Gilat also plan
to file other documents with the SEC regarding the proposed
transaction.
This press release is not a substitute for any
prospectus, proxy statement or any other document that Comtech or
Gilat may file with the SEC in connection with the proposed
transaction. Investors and security holders of Comtech and Gilat
are urged to read the proxy statement/prospectus and any other
relevant documents that will be filed with the SEC carefully and in
their entirety when they become available because they will contain
important information about the proposed transaction.
You may obtain copies of all documents filed
with the SEC regarding this transaction, free of charge, at the
SEC’s website (www.sec.gov). In addition, investors and security
holders will be able to obtain free copies of the proxy
statement/prospectus (when they become available) and other
documents filed with the SEC by Comtech on Comtech’s Investor
Relations page on Comtech’s web site at www.comtechtel.com or by
writing to Comtech, Investor Relations, (for documents filed with
the SEC by Comtech), or by Gilat on Gilat’s Investor Relations page
on Gilat’s web site at www.Gilat.com or by writing to Gilat,
Investor Relations, (for documents filed with the SEC by
Gilat).
Comtech and Gilat and their respective directors
and executive officers and other members of management and
employees may be deemed to be participants in the solicitation of
proxies in respect of the proposed transaction. Information about
Comtech’s directors and executive officers is available in
Comtech’s proxy statement for its 2019 Annual Meeting of
Stockholders filed with the SEC on November 15, 2019. Information
about directors and executive officers of Gilat is available in its
Annual Report on Form 20-F for the year ended December 31, 2018
filed with the SEC on March 18, 2019. Other information regarding
the participants in the proxy solicitation and a description of
their direct and indirect interests, by security holdings or
otherwise, will be contained in the proxy statement/prospectus and
other relevant materials to be filed with the SEC regarding the
merger when they become available. Investors should read the proxy
statement/prospectus carefully when it becomes available before
making any voting or investment decisions. You may obtain free
copies of these documents from Comtech or Gilat using the sources
indicated above.
About
ComtechComtech Telecommunications Corp. designs,
develops, produces and markets innovative products, systems and
services for advanced communications solutions. The company sells
products to a diverse global customer base and offers a variety of
advanced secure communication solutions including satellite ground
station technologies (such as modems and amplifiers), public safety
and location technologies (such as 911 call routing and mapping
solutions), mission-critical technologies (such as tactical
satellite-based networks and ongoing support for complicated
communication networks) and high-performance transmission
technologies (such as troposcatter systems and solid-state,
high-power amplifiers). For more information, visit
www.comtechtel.com.
About
GilatGilat Satellite Networks Ltd. is a leading
global provider of satellite-based broadband communications. With
30 years of experience, Gilat designs and manufactures cutting-edge
ground segment equipment, and provides comprehensive solutions and
end-to-end services, powered by Gilat’s innovative technology.
Delivering high value competitive solutions, Gilat’s portfolio
comprises of a cloud based VSAT network platform, high-speed
modems, high performance on-the-move antennas and high efficiency,
high power Solid State Amplifiers (SSPA) and Block Upconverters
(BUC).
Gilat’s comprehensive solutions support multiple
applications with a full portfolio of products to address key
applications including broadband access, cellular backhaul,
enterprise, in-flight connectivity, maritime, trains, defense and
public safety, all while meeting the most stringent service level
requirements. For more information, please visit:
www.gilat.com.
Forward-Looking
StatementsCertain information in this press
release contains forward-looking statements, including, but not
limited to, information relating to Comtech’s and Gilat’s future
performance and financial condition, plans and objectives of
Comtech's management and Gilat’s management and Comtech's and
Gilat’s assumptions regarding such future performance, financial
condition and plans and objectives that involve certain significant
known and unknown risks and uncertainties and other factors not
under Comtech's or Gilat’s control which may cause their actual
results, future performance and financial condition, and
achievement of plans and objectives of Comtech's management and
Gilat’s management to be materially different from the results,
performance or other expectations implied by these forward-looking
statements. Words such as “expects,” “anticipates,” “intends,”
“plans,” “believes,” “seeks,” “estimates,” variations of such words
and similar expressions are intended to identify such
forward-looking statements, which generally are not historical in
nature. Forward-looking statements could be affected by factors
including, without limitation: risks associated with the ability to
consummate the proposed transaction and the timing of the closing
of the proposed transaction or the occurrence of any event, change
or circumstance that could give rise to the termination of the
merger agreement; the risk that requisite regulatory approvals will
not be obtained; the possibility that the expected synergies from
the proposed transaction or other recent acquisitions will not be
fully realized, or will not be realized within the anticipated time
periods; the risk that Comtech’s and Gilat’s businesses will not be
integrated successfully; the possibility of disruption from the
proposed transaction or other recent acquisitions making it more
difficult to maintain business and operational relationships or
retain key personnel; the risk that Comtech will be unsuccessful in
implementing a tactical shift in its Government Solutions segment
away from bidding on large commodity service contracts and toward
pursuing contracts for its niche products with higher margins; the
risks associated with Comtech’s ongoing evaluation and
repositioning of its location technologies solutions offering in
its Commercial Solutions segment; the nature and timing of receipt
of, and Comtech’s performance on, new or existing orders that can
cause significant fluctuations in net sales and operating results;
the timing and funding of government contracts; adjustments to
gross profits on long-term contracts; risks associated with
international sales; rapid technological change; evolving industry
standards; new product announcements and enhancements, including
the risks associated with Comtech's launch of its
Heights™ Networking Platform; changing customer demands and or
procurement strategies; changes in prevailing economic and
political conditions; changes in the price of oil in global
markets; changes in foreign currency exchange rates; risks
associated with legal proceedings, customer claims for
indemnification and other similar matters; risks associated with
Comtech's obligations under its Credit Facility; risks associated
with large contracts; the impact of H.R.1, also known as the Tax
Cuts and Jobs Act, which was enacted in December 2017 in the U.S.;
and other factors described in this and Comtech's and Gilat’s other
filings with the SEC. Neither Comtech nor Gilat undertakes any duty
to update any forward-looking statements contained herein.
Use of Non-GAAP Financial
Information
|
Comtech |
Gilat |
ExcludesSynergies |
|
($ in
millions) |
Four Fiscal Quarters Ended: |
Pro Forma |
|
July 31, 2019 |
June 30, 2019 |
Combined(2) |
Reconciliation of GAAP Net Income to Adjusted
EBITDA(1): |
|
|
|
Net income |
$ |
25.0 |
|
$ |
20.2 |
|
$ |
45.2 |
|
Provision for (benefit from) income taxes |
|
3.9 |
|
|
(0.9 |
) |
|
3.0 |
|
Interest income and other |
|
- |
|
|
- |
|
|
- |
|
Write-off of deferred financing costs |
|
3.2 |
|
|
- |
|
|
3.2 |
|
Interest expense |
|
9.2 |
|
|
3.5 |
|
|
12.8 |
|
Amortization of stock-based compensation |
|
11.4 |
|
|
1.8 |
|
|
13.2 |
|
Amortization of intangibles |
|
18.3 |
|
|
1.1 |
|
|
19.5 |
|
Depreciation |
|
11.9 |
|
|
10.5 |
|
|
22.4 |
|
Estimated contract settlement costs |
|
6.4 |
|
|
- |
|
|
6.4 |
|
Settlement of intellectual property litigation |
|
(3.2 |
) |
|
- |
|
|
(3.2 |
) |
Acquisition plan expenses |
|
5.9 |
|
|
- |
|
|
5.9 |
|
Facility exit costs |
|
1.4 |
|
|
- |
|
|
1.4 |
|
Trade
secret litigation |
|
- |
|
|
(0.1 |
) |
|
(0.1 |
) |
Reorganization costs |
|
- |
|
|
0.6 |
|
|
0.6 |
|
Adjusted
EBITDA |
$ |
93.5 |
|
$ |
36.7 |
|
$ |
130.2 |
|
|
|
|
|
Note: Totals may not foot due to rounding
(1) The Company's Adjusted EBITDA is a Non-GAAP
measure that represents earnings (loss) before income taxes,
interest (income) and other, write-off of deferred financing costs,
interest expense, amortization of stock-based compensation,
amortization of intangible assets, depreciation expense, estimated
contract settlement costs, acquisition plan expenses or strategic
alternatives analysis expenses, facility exit costs, settlement of
intellectual property litigation and other. The Company's
definition of Adjusted EBITDA may differ from the definition of
EBITDA used by other companies and therefore may not be comparable
to similarly titled measures used by other companies. Adjusted
EBITDA is also a measure frequently requested by the Company's
investors and analysts. The Company believes that investors and
analysts may use Adjusted EBITDA, along with other information
contained in its SEC filings, in assessing the Company's
performance and comparability of its results with other
companies. Non-GAAP financial measures have limitations as an
analytical tool as they exclude the financial impact of
transactions necessary to conduct the Company’s business, such as
the granting of equity compensation awards, and are not intended to
be an alternative to financial measures prepared in accordance with
GAAP. These measures are adjusted as described in the
reconciliation of GAAP to Non-GAAP, but these adjustments should
not be construed as an inference that all of these adjustments or
costs are unusual, infrequent or non-recurring. Non-GAAP financial
measures should be considered in addition to, and not as a
substitute for or superior to, financial measures determined in
accordance with GAAP. Investors are advised to carefully
review the GAAP financial results that are disclosed in the
Company’s SEC filings.
(2) Pro forma combined results exclude all
expenses resulting from the acquisition (including, for example,
changes in interest expense associated with the credit facility
commitment received by Comtech, as well as synergies and changes in
amortization of acquired intangibles).
PCMTL
Contact Information
For Gilat Satellite
NetworksMedia and Investor
RelationsDoreet Oren, Director Corporation
CommunicationsDoreetO@gilat.com
or
June Filingeri, of Comm-Partners
LLC+1-203-972-0186junefil@optonline.net
For Comtech Telecommunications
Corp.Media or Investor
RelationsMichael D. Porcelain, President and
Chief Operating Officer631-962-7000info@comtechtel.com
Gilat Satellite Networks (NASDAQ:GILT)
Historical Stock Chart
From Aug 2024 to Sep 2024
Gilat Satellite Networks (NASDAQ:GILT)
Historical Stock Chart
From Sep 2023 to Sep 2024