Satellite Earth station component manufacturer Comtech Telecommunications Group is purchasing competitor Radyne Corp. for $223.6 million in an all-cash transaction that both companies’ boards of directors have approved, Comtech and Radyne announced May 12.

The $11.50-per-share price represents a 33 percent premium over where Radyne stock has been trading in recent months and responds to the protests of several of Radyne’s institutional shareholders, who had urged the company to seek a buyer.


The enlarged Comtech – with $651.5 million in combined
2007 revenue from both companies – will become a heavyweight in the industry of building amplifiers for satellite ground stations. Radyne also brings to Comtech
AeroAstro, the small-satellite manufacturer
Radyne purchased in August 2007.

Comtech officials said
they intend to
keep AeroAstro for the potential in its business
with the U.S. Defense Department.

Comtech estimates that it will incur about $5 million in transaction costs and between $7 million and $10 million in restructuring charges to complete the deal. The company expects the merger will create savings of up to $4 million during the first 12 months after it is completed, and $9 million to $11 million in annual savings after that, Comtech Chief Financial Officer Michael Porcelain said in a May 12 conference call with investors.


Melville, N.Y.-based Comt
ech will be closing Phoenix-based Radyne’s main production facility in Phoenix and moving that production to a Comtech facility in Tempe, Ariz.


Comtech Chief Executive Fred Kornberg said during the conference call that the merger will be accretive to Comtech’s earnings within 12 months, “and significantly accretive after that.”


Comtech reported revenue
of $504.3 million in the 12 months ending Jan. 31. Radyne’s revenue
for the year ending March 31 were $147.2 million.


Radyne officials had said they hoped to increase revenue
by 15 percent this year, but Porcelain said Comtech’s detailed inspection of the company’s books concluded that Radyne will not reach that goal.


Porcelain said Radyne management and some of the company’s operations have been distracted by the shareholder-demanded strategic review to find a potential buyer.


In addition, Radyne’s new AeroAstro small-satellite-manufacturing division is unprofitable, in part because AeroAstro has been investing heavily in bidding on
work from the U.S. government.


Porcelain said Comtech endorsed AeroAstro’s approach, which he said should yield results late this year or in 2009. It was the AeroAstro purchase that confused some Radyne shareholders, who viewed it as a step away from Radyne’s core ground-based businesses.


Porcelain agreed that AeroAstro may appear to be an oddity in Comtech’s portfolio, which like Radyne’s does not include satellites or satellite parts. But he said AeroAstro
also is providing digital signal processing gear to mobile satellite services operator Globalstar for equipment that permits users to send their position over the Internet through a hand-held device.


Porcelain said the equipment, known as a Sensor-Enabled Notification System Applique, shows promise for Comtech’s existing military customer base.


“Over time, we believe our existing military customers in our mobile data communications segment could benefit from such a product,” Porcelain said.