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Comtech Telecommunications (News - Alert) is ready to become larger and expand its portfolio. According to a Reuters report, the company is set to buy its smaller rival, CPI International (News - Alert) Inc. in a cash and stock deal said to be worth $472.3 million.
Shareholders of the Palo Alto-based CPI should expect to receive a combination of cash and stock valued at roughly $16.40 per share, which is a premium of 26 percent based on closing prices Friday.
Comtech, a Melville, N.Y.-based company, is said to be funding the acquisition through the re-deployment of existing cash issuing roughly $4.4 million shares of common stock. Any existing CPI debt is expected to be repaid at the close of the transaction.
CPI, a maker of microwave and radio frequency products for defense, communications, medical and other applications, anticipates its senior executive management and corporate teams will stay in current or similar roles and will work directly with Comtech management after the close of the transaction.
The successful close of this deal will nearly triple the size of Comtech’s RF microwave amplifier segment. Products from this division are used in radar jammers, air-to-ground satellite communications and a variety of other applications.
Comtech president and chief executive, Fred Kornberg (News - Alert) said, "CPI is a unique business and a leading global supplier of vacuum electron devices which are used in hundreds of critical commercial and military applications. The acquisition is a significant step in our strategy of developing a one-stop shopping approach for RF microwave products."
A maker of wireless communications systems, Comtech posted a 35 percent increase in profit in the last quarter to $16.3 million on less-than-expected sales growth to $171.1 million. The company gave an outlook for the year that was actually below analysts’ expectations, due to third-party supplier shipment delays.
The deal between Comtech and CPI is expected to generate more than $50 million in earnings before interest, income, taxes, depreciation and amortization (EBITDA) on an annual basis, according to Comtech.
CPI reported sales and EBITDA of $338.5 million and $56.4 million, respectively, for fiscal year ending January 1, 2010. Shares of Comtech closed at $31.06 while CPI closed at $13.05 Friday on Nasdaq.
Earlier this month, Comtech announced that its Maryland-based subsidiary, Comtech Mobile Datacom (News - Alert) Corporation, received a $67.3 million ceiling increase to its Movement Tracking System program contract with the U.S. Army and that deliveries under this contract ceiling increase can continue to be made through July 2011.
Susan J. Campbell is a contributing editor for TMCnet and has also written for eastbiz.com. To read more of Susan’s articles, please visit her columnist page.
Edited by Stefania Viscusi
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