Comtech Telecommunications Corp. (NASDAQ: CMTL or “Comtech”) and
TeleCommunication Systems, Inc. (NASDAQ: TSYS or “TCS”) jointly
announced today the signing of a definitive merger agreement under
which Comtech will purchase TCS in a cash transaction for $5.00 per
TCS share, or approximately a $430.8 million enterprise value. The
$5.00 price per share represents a premium of 13.9% as compared to
the last closing trading price of TCS common stock, a premium of
28.6% as compared to the volume-weighted average trading price over
the last ninety trading days and a premium of 35.1% as compared to
the last closing trading price one day after TCS’s July 6, 2015
announcement that its Board had formed a special committee to
explore strategic alternatives to enhance stockholder value.
During the twelve months ended September 30, 2015, TCS reported
revenue of $364.1 million and Adjusted EBITDA of $40.4 million, and
during the twelve months ended July 31, 2015, Comtech reported
revenue of $307.3 million and Adjusted EBITDA of $51.8 million.
Based on the trailing twelve months reported for the two companies,
pro forma combined revenue would have been $671.4 million, with
Adjusted EBITDA of $92.2 million (excluding synergies). The
combined companies employ about 2,000 people.
Dr. Stanton Sloane, President and Chief Executive Officer of
Comtech, said, “We are excited to have reached this agreement with
TCS and believe this combination is beneficial to the stakeholders
of both companies. TCS is a unique business and a leading provider
of mission-critical C4ISR solutions and next generation emergency
911 services to leading cellular and VoIP providers. The
acquisition is a significant step in our strategy of entering
complementary markets and expanding our domestic and international
commercial offerings. We welcome TCS’s senior management and
talented workforce to the Comtech team and are excited about the
future.”
Maurice B. Tosé, President and Chief Executive Officer of TCS,
said, “The TCS Board of Directors and management believe this
strategic combination with Comtech is compelling and provides
significant benefits for our stockholders, customers and employees.
Our customers will benefit from greater resources and more diverse
product offerings, and our employees will benefit from being part
of a larger more diversified company.”
Key Strategic Benefits for Comtech Include:
- Creates scale and more diversified
earnings, reducing volatility associated with challenging
international (including emerging markets) business
conditions;
- Provides entry into commercial markets,
including the public safety market which has a growing need for
next generation emergency 911 systems;
- Enhances position with existing
customers including establishing Comtech as a prime contractor on
several U.S. government contracts, including becoming the prime
contractor for sale of its over-the-horizon microwave systems
(troposcatter) products; and
- Generates meaningful cost
synergies.
Dr. Sloane and Mr. Tosé jointly stated, “We are excited about
the benefit that this transaction will bring to our customers and
expect benefits from enhanced resources for both companies. We
anticipate honoring and bringing enhanced resources to all existing
agreements with customers, VARs, distributors, OEMs and other
partners.”
Acquisition Expected to be Cash Accretive and Provides for
Meaningful Cost Synergies
The acquisition is expected to be cash accretive in the first
year of the acquisition and to result in approximately $12.0
million of synergies in the second year after closing (with
approximately $8.0 million achieved in the first year after
closing). Synergies are expected to be achieved by reduction of
duplicate public company costs, reduced spending on maintaining
multiple information technology systems and obtaining increased
operating efficiencies throughout the combined company.
In connection with the acquisition of TCS, Comtech expects to
incur transaction related expenses including certain
change-in-control payments, professional fees for financial and
legal advisors and debt extinguishment costs. Comtech preliminarily
estimates that these expenses will approximate $27.5 million, some
of which are expected to be immediately expensed upon closing, some
expensed during the first year following the closing and some
capitalized in accordance with purchase accounting rules. Pursuant
to accounting rules, the acquisition is expected to result in a
material increase in annual amortization expense related to
intangibles and possible other fair value adjustments.
Comtech will provide combined revenue, Adjusted EBITDA and
diluted earnings per share guidance in a future announcement.
Transaction Details and Closing Conditions
Under the terms of the merger agreement, unanimously approved by
both companies’ Board of Directors, Comtech will make a first step
cash tender offer at $5.00 per TCS share. Once the first step cash
tender is completed, it will be followed by a merger at the same
price. All TCS debt of approximately $143.6 million is anticipated
to be repaid upon the closing of the transaction.
The acquisition has a transaction equity value of approximately
$339.7 million and an enterprise value of approximately $430.8
million. The purchase price of $430.8 million represents an implied
transaction multiple of approximately 8.9x based on the last
trailing twelve months of reported TCS Adjusted EBITDA plus
approximately $8.0 million of first year identified synergies.
As of September 30, 2015, TCS had approximately $51.6 million of
cash, cash equivalents and marketable securities and, as of July
31, 2015, Comtech had $151.0 million of cash and cash equivalents.
Comtech will fund the acquisition by redeploying approximately
$149.9 million of the $202.6 million of pro forma combined cash,
cash equivalents and marketable securities, and has received a
commitment for a credit facility funded in the amount of up to
$400.0 million from a major financial institution for the remainder
of the purchase price. The exact terms of the credit facility will
be finalized at close. On a pro forma basis and including estimated
transaction fees of $27.5 million, Comtech would have approximately
$52.7 million of cash at closing.
On a pro forma basis, at the time of close, the combined company
is expected to have total leverage of about 3.9x trailing twelve
months combined pro forma Adjusted EBITDA. This is expected to
decrease over time, based on cash flows generated from the combined
businesses. Although the credit facility is expected to have
restrictions, the credit facility permits and Comtech anticipates
maintaining its annual targeted dividend rate of $1.20 per share.
The credit facility provides that Comtech may conduct an equity
offering for newly issued common shares to reduce total leverage
prior to or after the close.
The transaction is subject to customary closing conditions,
including the tender of at least a majority by vote of outstanding
shares of TCS common stock and expiration of the applicable waiting
period under the Hart-Scott Rodino Antitrust Improvements Act of
1976, and the transaction is expected to close no later than March
2016.
Maurice B. Tosé, Chairman, CEO and President of TCS and Jon B.
Kutler, Founder of Admiralty Partners, Inc. and a director of TCS,
each a significant stockholder of TCS, have entered into support
agreements pursuant to which they have agreed to tender their
shares, subject to terms and conditions, to demonstrate their
strong support of the proposed transaction.
Investor Presentation and Other Information
A separate investor presentation and question and answer
documents relating to the acquisition are available at
www.comtechtel.com.
Comtech management will discuss the transaction in more detail
as part of its first quarter earnings conference call which
generally occurs during the first half of December. Comtech will
provide the exact date of its first quarter earnings call in a
future announcement.
Citigroup Global Markets Inc. is serving as financial advisor to
Comtech. Proskauer Rose LLP is acting as Comtech’s legal counsel.
Lazard is acting as financial advisor to TCS. Bryan Cave LLP is
acting as TCS’s legal counsel.
About Comtech Telecommunications
Corp.
Comtech Telecommunications Corp. designs, develops, produces and
markets innovative products, systems and services for advanced
communications solutions. Comtech believes many of its solutions
play a vital role in providing or enhancing communication
capabilities when terrestrial communications infrastructure is
unavailable, inefficient or too expensive. Comtech conducts
business through three complementary segments: telecommunications
transmission, mobile data communications and RF microwave
amplifiers. Comtech sells products to a diverse customer base in
the global commercial and government communications markets.
Comtech believes it is a leader in the market segments that it
serves.
About TeleCommunication Systems,
Inc.
TeleCommunication Systems, Inc., headquartered in Annapolis,
Maryland, is a world leader in secure and highly reliable wireless
communications. TCS’s patented solutions, global presence,
operational support and engineering talent enable 911, commercial
location-based services and deployable wireless infrastructure;
cybersecurity; defense and aerospace components; and applications
for mobile location-based services and messaging. TCS’s principal
customers are wireless network operators, defense and public safety
government agencies, and Fortune 150 enterprises requiring high
reliability and security.
Additional Information About the Tender
Offer
The tender offer described herein has not yet commenced. The
description contained herein is for informational purposes only and
is not an offer to buy or the solicitation of an offer to sell any
shares of TCS. At the time the tender offer is commenced, Comtech
and its wholly owned subsidiary, Typhoon Acquisition Corp., intend
to file with the U.S. Securities and Exchange Commission (the
“SEC”) a Tender Offer Statement on Schedule TO containing an offer
to purchase, a form of letter of transmittal and other documents
relating to the tender offer, and TCS intends to file a
Solicitation/Recommendation Statement on Schedule 14D-9 with
respect to the tender offer. Comtech, Typhoon Acquisition Corp. and
TCS intend to mail these documents to the stockholders of TCS.
THESE DOCUMENTS, EACH AS MAY BE AMENDED OR SUPPLEMENTED FROM TIME
TO TIME, WILL CONTAIN IMPORTANT INFORMATION ABOUT THE TENDER OFFER
AND TCS STOCKHOLDERS ARE URGED TO READ THEM CAREFULLY WHEN THEY
BECOME AVAILABLE. Stockholders of TCS will be able to obtain a free
copy of these documents (when they become available) and other
documents filed by TCS, Comtech or Typhoon Acquisition Corp. with
the SEC at the website maintained by the SEC at www.sec.gov.
Stockholders will be able to obtain a free copy of these documents
(when they become available) from the information agent named in
the offer to purchase, or from Comtech by directing a written
request to: Comtech Telecommunications Corp., 68 South Service
Road, Suite 230, Melville, New York 11747, Attention: Investor
Relations.
Cautionary Statement Regarding
Forward-Looking Statements
Certain information in this press release contains
forward-looking statements regarding Comtech, including but not
limited to, information relating to Comtech’s future performance
and financial condition, plans and objectives of Comtech’s
management and Comtech’s assumptions regarding such future
performance, financial condition, plans and objectives that involve
certain significant known and unknown risks and uncertainties and
other factors not under Comtech’s control which may cause actual
results, future performance and financial condition, and
achievement of plans and objectives of Comtech’s management to be
materially different from the results, performance or other
expectations implied by these forward-looking statements. These
factors include, among other things: the risk that the acquisition
of TCS may not be consummated for reasons including that the
conditions precedent to the completion of the acquisition may not
be satisfied or the occurrence of any event, change or circumstance
that could give rise to the termination of the merger agreement;
the possibility that the expected synergies from the proposed
merger will not be realized, or will not be realized within the
anticipated time period; the risk that Comtech’s and TCS’s
businesses will not be integrated successfully; the risk that
requisite regulatory approvals will not be obtained; the
possibility of disruption from the merger making it more difficult
to maintain business and operational relationships or retain key
personnel; any actions taken by either of the companies, including
but not limited to, restructuring or strategic initiatives
(including capital investments or asset acquisitions or
dispositions); the timing of receipt of, and Comtech’s performance
on, new orders that can cause significant fluctuations in net sales
and operating results; the timing and funding of government
contracts; adjustments to gross profits on long-term contracts;
risks associated with international sales, rapid technological
change, evolving industry standards, frequent new product
announcements and enhancements, changing customer demands, and
changes in prevailing economic and political conditions; risks
associated with Comtech’s legal proceedings and other matters;
risks associated with Comtech’s obligations under its revolving
credit facility; and other factors described in Comtech’s and TCS’s
filings with the SEC.
Certain information in this press release contains
forward-looking statements regarding TCS, including, but not
limited to, the expected timing of the completion of the
transaction and the benefits of the transaction to TCS
stockholders. These forward-looking statements reflect the current
analysis of existing information and are subject to various risks
and uncertainties. As a result, caution must be exercised in
relying on any forward-looking statements. Due to known and unknown
risks, actual results may differ from expectations or
projections.
The following factors, among others, could cause actual results
to differ materially from those described in these forward-looking
statements: the effect of the announcement of the tender offer and
related transactions on the business relationships of TCS
(including partners, customers and suppliers), operating results
and business generally; the occurrence of any event, change or
other circumstance that could give rise to the termination of the
merger agreement, and the risk that the merger agreement may be
terminated in circumstances that require TCS to pay a termination
fee of $10.2 million; the outcome of any legal proceedings that may
be instituted against TCS or Comtech related to the merger
agreement or any of the transactions contemplated by the merger
agreement; uncertainties as to the number of TCS stockholders who
may tender their TCS common stock in the tender offer; the failure
to satisfy the conditions to completion of the merger and the
tender offer, including the receipt of all regulatory approvals
related to the transactions; the failure of Comtech to consummate
its necessary financing arrangements; risks that the tender offer
and related transactions disrupt current plans and operations of
TCS and the potential difficulties in employee retention as a
result of the proposed transactions; the effects of local, national
and global economic, credit and capital market conditions on the
economy in general, and other risks and uncertainties; as well as
those risks and uncertainties described from time to time in
reports and public filings with the SEC made by TCS and
Comtech.
------See Reconciliation of GAAP Net Income
to Adjusted EBITDA on Next Page ------
Reconciliation of GAAP Net Income to
Adjusted EBITDA
TCS
CMTL
ExcludingSynergies
Four FiscalQuarters Ended
September 30,2015
Four FiscalQuarters Ended
July 31,2015
Pro
FormaCombined(2)
Reconciliation of GAAP Net Income to
Adjusted
EBITDA(1):
GAAP net income $ 3,688 $23,245 $26,933 Interest, net
8,123 74 8,197 Depreciation and amortization 17,443 12,736 30,179
Income taxes 3,509 10,758 14,267 Amortization of stock-based
compensation 4,747 4,363 9,110 Amortization of deferred financing
fees 895 - 895 Strategic alternatives expenses 2,131 585 2,716
Other (income) expense
(104) -
(104) Adjusted EBITDA
$40,432
$51,761 $92,193
(1) Represents earnings before interest,
income taxes, depreciation and amortization of intangibles and
stock-based compensation based on the Adjusted EBITDA calculation
utilized by Comtech. Adjusted EBITDA is a non-GAAP operating metric
used by Comtech in assessing both its and TCS’s operating results.
Comtech’s definition of Adjusted EBITDA may differ from the
definition of Adjusted EBITDA used by TCS and other companies, and
may not be comparable to similarly titled measures used by other
companies. Adjusted EBITDA is also a measure frequently requested
by Comtech’s investors and analysts. Comtech believes that
investors and analysts may use Adjusted EBITDA, along with other
information contained in its SEC filings, in assessing its ability
to generate cash flow and service debt.
(2) Pro Forma Combined results exclude all
expenses resulting from the acquisition (including, for example
changes in interest expense associated with the credit facility
commitment received by Comtech as well as synergies and changes in
amortization of acquired intangibles).
PCMTL
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version on businesswire.com: http://www.businesswire.com/news/home/20151123005605/en/
Media:Michael D. Porcelain,
Senior Vice President and Chief Financial
Officer631-962-7103Info@comtechtel.com
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