Comtech rejects $790 million takeover offer

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TAMPA, Fla. — Satellite communications equipment maker Comtech Telecommunications said Jan. 25 it has rejected a $790 million offer to take over the company. 

In October, investment firm Acacia Research Corp. made a $30-per-share offer for Comtech after the New York firm’s stock had fallen to around $21 amid declining revenue and a failed merger with Israel’s Gilat Satellite Networks.

Comtech’s shares hit $27 on the takeover news but fell back to around $21 in the months Comtech took to evaluate the offer. Comtech’s stock closed at $21.40 a share Jan. 25, up 3.7% on a down day for the Nasdaq Composite.  

Comtech said its board of directors, including its new CEO and other recently appointed members, unanimously rejected the offer because it “grossly undervalues” the company.

According to the board, the offer “does not reflect the transformational changes underway” in satcoms, 911 public safety and the company’s other markets, and fails to capture “the significant inherent value” in its strategic growth plan.

Comtech’s business has suffered during the pandemic. The company recorded $117 million in net sales for the three months to Oct. 31 in its latest financial results, down 13% from the $135.2 million recorded for the same period the year before. 

However, Comtech’s CEO Michael Porcelain said the company is well-positioned to take advantage of “large renewal cycles” that are just coming into view in the public safety and satcoms markets.

“While COVID-19 and global supply chain issues continue to impact our business and customers, we continue to expect sequential performance improvements through the year,” he said Dec. 9, when he was chief operating officer for the company.

Porcelain reconfirmed the company’s target to achieve between $580 million and $600 million in net sales for its fiscal 2022 ending July 31.

Comtech’s rocky October

Comtech said Oct. 4 that net sales for fiscal 2021 came in at $582 million, down 6% from the $617 million recorded the year before. 

That annual performance prompted activist investor Outerbridge Capital Management to send a letter to Comtech’s board Oct. 6, expressing a lack of faith in the company’s management. Outerbridge owned just under 5% of Comtech at the time.

The letter took aim at a decision Comtech announced Oct. 4 to promote Porcelain from COO to CEO at the end of 2021.

It also criticized an acquisition strategy that forced Comtech to pay Gilat $70 million after the pandemic helped merger plans announced Jan. 29, 2020 fall apart about nine months later.

Following a public spat between Comtech and Outerbridge, which included a Nov. 29 Comtech presentation challenging the activist investor’s  “misleading claims,” Comtech agreed to make several management changes. 

The changes announced Dec. 16 include the appointment of an independent director that Comtech and Outerbridge mutually support. Outerbridge also agreed to support Comtech’s nomination of two directors in return for Comtech backing an Outerbridge nominee.

“Over the course of our recent discussions, it has become clear that Outerbridge is a knowledgeable and engaged shareholder seeking to enhance value for all stakeholders,” said Porcelain, who became a member of the board Jan. 3 to fully replace long-serving CEO Fred Kornberg.