Integral Stock Drops on Acquisition News

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Satellite control technologies manufacturer Integral Systems’ May 16 announcement that it had agreed to be purchased by Kratos Defense & Security Solutions did not go over well with Integral’s investors, who drove the company’s stock down in an apparent expression of disappointment at the sales price.

Columbia, Md.-based Integral said its shareholders would be receiving the equivalent of $13 per share in the form of cash and stock in San Diego-based Kratos.

But since Integral announced in January that it was searching for a strategic transaction, investors had bid the stock up higher than that price. Immediately after the Integral-Kratos deal was disclosed, several law firms announced their intention to represent Integral shareholders in an investigation of whether the transaction is fair.

Integral Chief Executive Paul G. Casner, in a May 16 conference call, stressed the complementary nature of the businesses of Integral and Kratos in their approach to U.S. military agencies for satellite links for unmanned aerial vehicles, and situational awareness. He said the merger would create substantial savings as the two companies combined their administrative functions.

Casner also stressed that the sales price represents a 16.6 percent premium over where Integral was trading the day before its January announcement that it had hired Stone Key Partners LLP to review strategic options. The fact that investors bid the stock up beyond the acquisition price says more about the stock market than about the fairness of the deal’s terms, Casner said.

“We reviewed the alternatives and selected the best that was offered,” Casner said.

The Integral and Stratos boards of directors unanimously approved the transaction, which now must win the approval of both companies’ shareholders.

Kratos Chief Executive Eric DeMarco, in a May 16 statement, said Integral’s signal-processing technology is used on 80 percent of U.S. space missions and by 75 percent of the world’s commercial telecommunications satellite fleet operators.

“In Operation Enduring Freedom in Afghanistan, bits-per-second [bps] usage per person increased to approximately 8,300, and by the launch of Operation Iraqi Freedom in 2004 bps per person had reached 13,800,” DeMarco said. “This type of satellite-based bandwidth increase by the United States military and national security agencies has continued, and [is] just one of the many reasons we are extremely excited about the merger with Integral Systems.”