Ceragon's Strategy Has Driven Increased
Bookings and Market Share Gains – and is Expected to Create
Significant Revenue Growth, Margin Expansion and Shareholder
Value
Aviat's Demand to Appoint Five Hand-Picked
Directors to Ceragon's Board Violates Ceragon's Articles
Ceragon Files a Proxy Statement in Connection
with an Extraordinary General Meeting; Urges
Shareholders to Vote Against the Removal of Ceragon's Directors on
the WHITE Proxy Card
Ceragon's Largest Shareholder, Joseph D. Samberg, Founder & CEO of JDS
Capital, Affirms His Support for the Company, Management and Board;
His View that Aviat's Acquisition Proposal Is Well Below Ceragon's
Fair Value; and His Intention to Vote For Ceragon's Board and
Against Aviat's Request to Remove Any of our Existing
Directors
Ceragon to Host Investor Conference at
9:00 AM Eastern Time Today
ROSH
HA'AIN, Israel,
July 18,
2022 /PRNewswire/ -- Ceragon Networks Ltd. (NASDAQ:
CRNT) (the "Company", "Ceragon", "we", "us", or "our") today issued
the following letter to shareholders concerning the response of
Ceragon's Board of Directors (the "Board") to an unsolicited,
highly conditional, non-binding indication of interest from Aviat
Networks, Inc. (NASDAQ: AVNW), a competitor of Ceragon.
The letter to shareholders and other supplemental information,
including a presentation, will be posted to Ceragon's investor
relations website here.
In addition, the Company will host a Zoom web conference today
at 9:00 AM ET to discuss Aviat's
unsolicited indication of interest and proxy contest, as well as
its strategy and business. You can access the web conference
here.
The full text of the letter to shareholders follows:
18 July 2022
Dear Fellow Shareholder,
As you may know, Ceragon
recently received an unsolicited, highly
conditional, non-binding indication of interest ("IOI")
from its competitor, Aviat Networks, Inc. ("Aviat"), to acquire
Ceragon at a price of $2.80 per
share. After a careful
and thorough review,
conducted in consultation with our independent financial and
legal advisors, the Board unanimously reached a
conclusion that Aviat's IOI significantly undervalues the
Company, does not provide certainty of closure, is
opportunistically timed, carries significant risks to the
Company and, as such,
is not in the best interests of shareholders
– other than those of Aviat.
In support of its hostile attempt to acquire Ceragon, Aviat has
launched a proxy fight, calling an Extraordinary General Meeting of
Ceragon's shareholders (the "EGM") in an attempt to take control of
the Board and push through their opportunistic acquisition offer
with the support of their director nominees. Moreover, they
have launched this predatory action in a way that would violate our
Articles of Association (the "Articles") – as they are not
permitted to nominate five directors at the EGM.
Aviat is proposing that Ceragon's shareholders approve director
nominees hand-picked by Aviat to control Ceragon's Board and to be
entrusted with leading negotiations for a potential transaction
with Aviat, which can obviously result in a bad deal for Ceragon
shareholders. In addition, none of Aviat's nominees have
telecom experience and all of Aviat's nominees have either no or
problematic board experience. We believe that none of Aviat's
nominees would have an incentive to fight hard to deliver value and
certainty for Ceragon's shareholders, which is troubling given
Aviat's recent reduction of its indicative price per share and its
failure to provide Ceragon with firm financing commitments and deal
certainty. Further, we believe Aviat's nominees would leave Ceragon
with a weak, inexperienced Board that will not be able to
effectively oversee the Company's strategy.
As part of our ongoing shareholder outreach, we have had
dialogue with a number of our shareholders about this hostile
attempt by Aviat to take control of our Board and our business, and
we have appreciated their helpful insights and support. Our largest
shareholder, Joseph D. Samberg
(Founder and CEO of JDS Capital), who owns almost 10% of our
shares, announced today his support for the Company, Management and
Board; his view that Aviat's acquisition proposal is well below
Ceragon's fair value; and his intention to vote for Ceragon's Board
and against Aviat's request to remove any of our existing
directors.
Ceragon's Board is singularly focused on the best interests of
the Company and on maximizing value for Ceragon's shareholders.
Indeed, our Board has been open to exploring a potential
transaction with Aviat, having met with its representatives many
times since 2017 to discuss the possibility of a potential business
combination between the companies. We would again be willing to
consider a potential combination with Aviat, but only if such
combination delivers full, fair and certain value to Ceragon
shareholders. Aviat's current hostile campaign most
certainly does not.
In this letter, we want to outline the issues at stake in
Aviat's hostile campaign.
Aviat's "Trojan Horse Offer" is Merely Indicative and Far
from a Firm Commitment
To be clear, Aviat's IOI is not a real "proposal" – and any of
its "terms" are subject to change (the recent decrease in Aviat's
indicative price proves that Aviat will not hesitate to change its
terms).
Over the course of our recent interactions with representatives
of Aviat (including a meeting in Israel) regarding a potential combination,
Aviat has never delivered any documentation demonstrating a firm
commitment from reputable financing sources in support of its
various proposals. In today's volatile financial markets, we
believe it is critical to have firm financing commitments to ensure
deal certainty.
Moreover, Aviat wants to be able to enter into an agreement
without meaningful contractual protections that would protect
Ceragon and its shareholders from damages that Aviat could impose
on Ceragon (their competitor), in the event that Aviat walks away
from a transaction after it is signed. Given that Aviat has
already recently significantly reduced the value of its
November 2021 indication, Ceragon's
shareholders should not bear the risk of Aviat's future attempts to
undercut value or terminate a transaction.
Aviat's Self-Serving Takeover Campaign and EGM
In an attempt to distract shareholders from its low-ball IOI and
lack of financing and certainty, Aviat has launched a campaign of
misstatements, mischaracterizations and hostile actions.
First, Aviat tries to argue that Ceragon's Board does not want
to enter into a merger transaction. What they fail to mention
is that Ceragon met with Aviat many times since 2017 to explore a
potential combination. When we last met in June of 2022,
Aviat agreed to send us a follow-up list of diligence items that we
agreed to review. Instead, Aviat launched a hostile attack and
never sent their follow up list. Aviat deliberately conflates
our unwillingness to enter into a bad transaction for Ceragon
shareholders with our willingness to explore value-creating
opportunities.
Second, Aviat has attacked Ceragon's financial performance to
make the case for their hostile bid, pointing to uncontextualized
stock price decline. Ceragon has indeed suffered recent
negative stock price performance, particularly following supply
chain disruptions facing the industry that have adversely impacted
our revenue and gross margins, and the recent downturn in the
broader financial markets. What Aviat fails to mention is the
substantial business momentum Ceragon has experienced in recent
quarters.
In particular, Ceragon has substantially increased its
bookings and backlog and has experienced significant market share
gains in North America – Aviat's
backyard. We understand why Aviat would try to acquire
Ceragon "on the cheap" given prevailing stock prices – but we also
firmly believe that a low-ball transaction that substantially
undervalues Ceragon is clearly not in the best interests of Ceragon
shareholders.
Finally, because our Board has refused to sell the Company for a
low-ball value in a highly conditional transaction without firm
financing commitments from a reputable financial institution, Aviat
has decided to call the EGM in an attempt to take control of the
Board. Their proposed EGM agenda has two parts: (1) remove
three highly qualified Ceragon directors and (2) add five new
unqualified directors hand-picked by Aviat, which would give Aviat
a control position of our Board. Aviat has launched this EGM merely
to put its hand-picked nominees in control of the Ceragon
Board to negotiate a transaction on behalf of Ceragon's
shareholders that would implement Aviat's low-ball, highly
conditional indication.
Moreover, Aviat has launched a proxy fight that would violate
Ceragon's shareholder-ratified Articles. While Aviat is requesting
to remove three of Ceragon's existing directors and add five of its
unqualified director nominees to Ceragon's Board, Ceragon's
Articles do not permit Aviat to nominate five directors at this
EGM. Consequently, Aviat will be limited to its attempt to (1)
remove Ceragon directors, and (2) provided its attempt to remove
all Ceragon directors requested to be removed is successful,
appoint up to three of its director nominees to fill the vacancies
on our Board created by such removal.
In support of its illegitimate action, Aviat selected five
director nominees to add to the Ceragon Board with little regard to
Ceragon's business:
- ZERO have relevant telecom expertise
- ZERO have adequate public company board experience
relevant for the Ceragon Board
-
- Three have no public company director experience
whatsoever;
- Mr. Foster already serves on four boards and would be
considered over-boarded if he is added to Ceragon's Board; and
- Mr. Sadlowski served on one public company board (the CECO
Environmental Board), which underperformed the market by more than
80% during his tenure.
Aviat's hand-picked director nominees do not have the requisite
expertise to lead a sophisticated, market-leading telecom company.
This all leads to the inescapable conclusion that they were
selected solely to force a sale to Aviat and/or to take control of
Ceragon's Board in order to disrupt Aviat's competitor. This
is particularly troubling because if Aviat's nominees take control
of the Ceragon Board, Aviat can reduce their price (again), execute
a transaction that allows Aviat to walk away if unable to secure
financing, or destroy Ceragon from inside the Boardroom.
Aviat's IOI Substantially Undervalues Ceragon and is
Attempting to Deprive Ceragon's Shareholders from the Value Upside
that They Deserve
As a global innovator and leader in best-of-breed solutions for
5G wireless transport, Ceragon helps operators and other service
providers worldwide to increase operational efficiency and enhance
end-customers' quality of experience with cutting-edge wireless
transport and fronthaul solutions. Our unique, proprietary
multicore technology and disaggregated approach to wireless
transport provides highly reliable, fast-to-deploy, high-capacity
wireless transport for both 4G and 5G networks – positioning
Ceragon as a leading solutions provider for the 5G era. Our
solutions are deployed by more than 460 service providers in more
than 150 countries with more than 1 million systems deployed.
Ceragon is poised to benefit from strong underlying growth
trends in the telecom industry, including a substantial pickup in
global 5G adoption, growth in millimeter wave and fixed wireless
broadband, and growth of private networks in multiple domains.
Ceragon's superior propriety technological capabilities have driven
growth in best-of-breed 4G/5G products for Tier 1 & 2
customers. According to internal estimates, Ceragon's products now
comprise ~25% of the market for best-of-breed solutions – the
larger and faster growing segment – which has rapidly grown from
~15% of the market since 2019 and is more than 3x Aviat's current
market share.
Ceragon's core business remains strong. We have substantial
momentum across our business with bookings of $179 million in the first half of 2022. Our
North America business achieved
$39 million of bookings in the first
half of 2022 driven by recent wins with large customers, including
Dish and the final trial stages of a front-haul solution for a
top-three national wireless carrier. North America is now nearly Ceragon's largest
market, representing 26% of our bookings in the second quarter of
2022 – an increase of 37% from the first quarter of 2022 and
up from 15% of our total bookings just three years ago. This
increase is expected to drive enhanced margins with additional
market share gains.
In addition, Ceragon has a number of strategic growth
initiatives underway aimed to contribute to substantial long-term
revenue growth, margin expansion and shareholder value creation.
These initiatives include:
- North America:
Continuing to increase market share gains in North America where margins tend to be higher.
Ceragon has become the #1 wireless transport vendor in North America for Tier 1 operators, and we
expect to increase our growth among Tier 1 operators as part of
broader 5G adoption. In addition, increased infrastructure in rural
broadband is expected to drive Ceragon's growth among small
carriers, private networks and wireless broadband providers in
multiple domains.
- Managed Services Supported by Software Tools:
Strengthening our managed services offering to deepen our
relationship with our customers, which has become an important
growth vertical and a source of recurring revenue. We have already
achieved bookings of ~$8 million in
the first half of 2022, which is ~40% higher than our managed
services bookings in the full-year 2021. Further, we expect our
growing software tools segment will also provide high-margin
recurring revenue via direct sales or as tools for the managed
services business.
- Cell Site Routing: As part of the evolution of Open
Network architecture, disaggregated CSR is a rapidly growing market
that is expected to grow to $400
million over the next few years. We see an opportunity to
disrupt the space with our new IP-50FX product, which help us
leverage the disruptive fast-growing open network trend. While the
market has only just begun to takeoff, we have already booked 216
units with average gross margins in excess of our overall
margins.
We continue to develop differentiated technology, recently
demonstrated by our first-to-market TIP compliant virtual indoor
product. We also have been enhancing our suite of IP-50
products using a new radio chip developed in-house, with new
products expected to be released in 2023 that are aimed to improve
customer penetration and drive higher margins by targeting ~40%
reduced BOM. Further, we have a long track record of chipset
development across 5 generations of chips, including our next-gen
System-on-a-Chip ("SOC"), which is soon to be productized and we
believe is three years ahead of the market. Rather than
outsourcing chip and product development to outside partners like
some of our competitors, Ceragon develops industry leading
technology in-house, which customers, industry leaders, research
analysts and other third parties view as a significant competitive
advantage.
Various temporary, exogenous factors have contributed to
industry-wide global component shortages and higher shipping costs,
resulting in slower conversion of our very strong bookings into
revenue and an estimated ~4% reduction in our gross margins.
However, we have taken a number of offsetting actions aimed at
improving margins and converting bookings into revenue growth,
including improving contractual terms with our partners,
redesigning products and subsystems to reduce production costs,
replacing one of our contract manufacturers, dedicating teams to
forecast and manage component shortages and streamlining shipment
process with additional vendors.
With the strength of our core business, combined with our new
growth initiatives and supply chain normalization, we expect to
drive revenue of $325–345 million in the full year 2023, and are
targeting revenue of approximately $500
million and gross margins of at least 34–36% within the next
five years.
Importantly for Ceragon shareholders, our Board has concluded,
with the assistance of independent financial and legal advisors,
that the IOI significantly undervalues Ceragon. This conclusion is
also supported by the informed views of sophisticated third-party
research analysts that have recommended an average price target of
$5.08 – ~80% higher than Aviat's
indication. In fact, one research analyst publicly referred to
Aviat's IOI as a "low-ball offer"1 – an important
statement in support of our position from one of the highly
respected independent brokerage firms covering the telecom
sector.
Further, Aviat's indication does not reflect the additional
upside in value that Ceragon is disclosing today, including our
recent growth in bookings and market share. Our strong
business momentum and new growth initiatives serve to further
reinforce our view that Aviat's IOI clearly fails to deliver
adequate value to Ceragon shareholders.
Our Commitment to Ceragon Shareholders
In contrast to Aviat's unqualified nominees, Ceragon's Board
includes leaders with substantial telecom and M&A experience –
including at Radware, Tdsoft, CTP Systems, RADVision and DSP
Communications – and track records of delivering shareholder
value. Our board is diverse and continues to refresh itself,
including the addition of three independent directors at last
year's AGM.
Ceragon's Board is willing to transact with Aviat or any
other party that delivers full, fair and certain value to our
shareholders. We will not, however, sell the Company at an
inadequate price or enter into a sale transaction that has a high
degree of uncertainty and that Aviat (a competitor) can terminate
without serious consequences.
The Ceragon Board appreciates the continued dialogue with our
shareholders and the valuable input received to date. We are
committed to acting in the best interests of our shareholders. We
look forward to continuing our strong momentum as we execute our
strategic plan to generate superior shareholder value, and we are
open to exploring any opportunities that will create shareholder
value including a sale of the Company.
Best regards,
The Ceragon Board
1 Needham & Company, 6/28/22
Conference Call
The Company will host a Zoom web conference today at
9:00 AM ET followed by a question and
answer session for the investment community.
Investors are invited to register by clicking here.
An associated presentation and supplemental information will
also be available prior to the call here.
If you are unable to join us live, a recording of the call will
be available on our website at www.ceragon.com within 24 hours
after the call.
About Ceragon Networks
Ceragon Networks Ltd. (NASDAQ: CRNT) is the global
innovator and leading solutions provider of 5G wireless transport.
We help operators and other service providers worldwide increase
operational efficiency and enhance end customers' quality of
experience with innovative wireless backhaul and fronthaul
solutions. Our customers include service providers, public safety
organizations, government agencies and utility companies, which use
our solutions to deliver 5G & 4G broadband wireless
connectivity, mission-critical multimedia services, stabilized
communications, and other applications at high reliability and
speed.
Ceragon's unique multicore technology and disaggregated approach
to wireless transport provides highly reliable, fast to deploy,
high-capacity wireless transport for 5G and 4G networks with
minimal use of spectrum, power, real estate, and labor resources.
It enables increased productivity, as well as simple and quick
network modernization, positioning Ceragon as a leading solutions
provider for the 5G era. We deliver a complete portfolio of turnkey
end-to-end AI-based managed and professional services that ensure
efficient network rollout and optimization to achieve the highest
value for our customers. Our solutions are deployed by more than
400 service providers, as well as more than 800 private network
owners, in more than 150 countries. For more information please
visit: www.ceragon.com.
Ceragon Networks® and FibeAir® are registered trademarks of
Ceragon Networks Ltd. in the United
States and other countries. CERAGON ® is a trademark of
Ceragon Networks Ltd., registered in various countries. Other names
mentioned are owned by their respective holders.
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
This document contains statements that constitute
"forward-looking statements" within the meaning of the Securities
Act of 1933, as amended and the Securities Exchange Act of 1934, as
amended, and the safe-harbor provisions of the Private Securities
Litigation Reform Act of 1995. Such forward-looking statements are
based on the current beliefs, expectations and assumptions of
Ceragon's management about Ceragon's business, financial condition,
results of operations, micro and macro market trends and other
issues addressed or reflected therein. Examples of forward-looking
statements include, but are not limited to, statements regarding:
projections of demand, revenues, net income, gross margin, capital
expenditures and liquidity, competitive pressures, order timing,
supply chain and shipping, components availability, growth
prospects, product development, financial resources, cost savings
and other financial and market matters. You may identify these and
other forward-looking statements by the use of words such as "may",
"plans", "anticipates", "believes", "estimates", "targets",
"expects", "intends", "potential" or the negative of such terms, or
other comparable terminology, although not all forward-looking
statements contain these identifying words.
Although we believe that the projections reflected in such
forward-looking statements are based upon reasonable assumptions,
we can give no assurance that our expectations will be obtained or
that any deviations therefrom will not be material. Such
forward-looking statements involve known and unknown risks and
uncertainties that may cause Ceragon's future results or
performance to differ materially from those anticipated, expressed
or implied by such forward-looking statements. These risks and
uncertainties include, but are not limited to, any ongoing actions
taken and future actions that may be taken by Aviat Networks or
other stockholders or others; the continuing impact of the
components shortage due to the global shortage in semiconductors,
chipsets, components and other commodities, on our supply chain,
manufacturing capacity and ability to timely deliver our products,
which have caused, and could continue to cause delays in deliveries
of our products and in the deployment of projects by our
customers, risk of penalties and orders cancellation created
thereby, as well as profit erosion due to constant price increase,
payment of expedite fees and costs of inventory pre-ordering and
procurement acceleration of such inventory, and the risk of
becoming a deadstock if not consumed; the continued effect of the
global increase in shipping costs and decrease in shipping slots
availability on us, our supply chain and customers, which have
resulted, and may continue to result in, price erosion, late
deliveries and the risk of penalties and orders cancellation due to
late deliveries; the impact of the transition to 5G technologies on
our revenues if such transition is developed differently than we
anticipated; the risks relating to the concentration of a major
portion of our business on large mobile operators around the world
from which we derive a significant portion of our ordering, that
due to their relative effect on the overall ordering coupled with
inconsistent ordering pattern and volume of business directed to
us, creates high volatility with respect to our financial results
and results of operations; the effect of the competition from other
wireless transport equipment providers and from other communication
solutions that compete with our high-capacity point-to-point
wireless products; the continued effect of the COVID-19 pandemic on
the global economy and markets and on us and on the markets in
which we operate and our and our customers, providers, business
partners and contractors business and operations; the risks
relating to increased breaches of network or information technology
security along with increase in cyber-attack activities, growing
cyber-crime threats, and changes in privacy and data protection
laws, that could have an adverse effect on our business; risks
associated with any failure to meet our product development
timetable, including delay in the commercialization of our new
chipset; imposition of additional sanctions and global trade
limitations in connection with Russia's invasion to Ukraine, the effects of general economic
conditions and trends on the global and local markets in which we
operate and such other risks, uncertainties and other factors that
could affect our results, as further detailed in Ceragon's most
recent Annual Report on Form 20-F and in Ceragon's other filings
with the Securities and Exchange Commission.
Such forward-looking statements, including the risks,
uncertainties and other factors that could affect our results,
represent our views only as of the date they are made and should
not be relied upon as representing our views as of any subsequent
date. Such forward-looking statements do not purport to be
predictions of future events or results and there can be no
assurance that it will prove to be accurate. Ceragon may elect to
update these forward-looking statements at some point in the future
but the company specifically disclaims any obligation to do so
except as may be required by law.
Ceragon's public filings are available on the Securities and
Exchange Commission's website at www.sec.gov and may also be
obtained from Ceragon's website at www.ceragon.com.
ADDITIONAL INFORMATION
Ceragon has filed a definitive proxy statement and WHITE proxy card with the U.S. Securities and Exchange Commission (the "SEC") in connection with its solicitation of proxies for the
2022 Extraordinary General Meeting of Ceragon
Shareholders (the "2022 Extraordinary General Meeting"). CERAGON
SHAREHOLDERS ARE STRONGLY ENCOURAGED TO READ THE DEFINITIVE PROXY
STATEMENT (AND ANY AMENDMENTS AND SUPPLEMENTS THERETO) AND
ACCOMPANYING WHITE PROXY CARD AS THEY CONTAIN IMPORTANT
INFORMATION. Shareholders may obtain the proxy statement, any
amendments or supplements to the proxy statement and other
documents as and when filed by Ceragon with the SEC without charge
from the SEC's website at www.sec.gov.
Ceragon Investor & Media Contact:
Maya Lustig
Ceragon Networks
Tel. +972-54-677-8100
mayal@ceragon.com
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