US communications equipment maker Comtech Telecommunications has pulled a potential sale after its board of directors announced that the company and its shareholders would be best served by remaining independent.
Comtech retained Citigroup in August…
US communications equipment maker Comtech Telecommunications has pulled a potential sale after its board of directors announced that the company and its shareholders would be best served by remaining independent.
Comtech retained Citigroup in August 2014 to undertake a review of strategic alternatives, including a possible merger or sale of the company. Having completed that review, the company has decided to remain on its current path.
Commenting on the decision, Comtech chairman and CEO, Fred Kornberg, stated: “At the end of a thorough and rigorous process, our Board concluded that the company is best positioned to maximize shareholder value by continuing to execute on its strategies of enhancing its leadership positions in the markets we serve, participating in emerging technologies that enhance or expand our product portfolio, carefully pursuing acquisitions of businesses and technologies, and returning cash to our shareholders.”
Further to this, Comtech has declared a quarterly cash dividend of US$0.30 per share, payable on 18 February 2015. The company paid a quarterly dividend of US$4.9m on 19 November 2014.
Any possible sale faced a number of challenges, notably over the company’s valuation.
According to Raymond James analyst Chris Quilty, Comtech’s shares have been trading at a multiple of 7.3x consensus FY15 EBITDA of US$62m, this is a significant premium to the stock’s five-year trailing average of 4.8x. He adds that Comtech’s annual revenue has declined 17% on average from FY11-14.
A further hurdle is that the technological advantage of its Single Carrier per Channel (SCPC) satellite modem products has been eroded with the majority of its competitors using Time Division Multiple Access (TDMA) technology.
This in turn affects the number of potential strategic bidders. Quilty had previously listed Hughes, iDirect, ViaSat, Teledyne, Newtex, Gilat and CPI International as companies that might be interested as they operate in a similar segment. However, none of these is an easy fit for a merger.
The strategic review is the second that Comtech has completed in recent years. In 2010, the company failed in a US$473m bid to buy CPI, which was subsequently acquired by private equity firm Veritas Capital. This prompted an increasing level of shareholder criticism over the strategic direction of the company and in 2011 the board revealed that it had hired external advisers to look at strategic alternatives.
Alongside Citigroup, Proskauer Rose provided legal advice and Morris, Nichols, Arsht & Tunnell acted as special counsel on the most recent strategic review.
