Comtech’s acquisition of Gilat stumbles

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Comtech’s plan to buy Israel-based Gilat Satellite Networks for $532 million (€470m) has hit a snag.

The deal (70 per cent in cash and 30 per cent in Comtech Telecommunications common stock) was first announced by the pair in January.

The obstacle is fairly fundamental and sees Comtech filing a formal complaint against Gilat (in a Delaware court) which alleges that Gilat has taken “certain actions” which could result in the business being of less value to Comtech. The complaint further states that: “[a] precipitous decline in Gilat’s business since January 29, 2020″ may give it grounds to terminate its offer to acquire Gilat.

Gilat’s Nasdaq stock price crashed 14 per cent on the news.

Reports out of New York suggest that Comtech has cooled on the deal and in particular is anxious about the fall-off in business at Gilat because of the Covid-19 virus, and the subsequent damage to Gilat’s revenues.

Gilat, on July 12th, said it had filed a counterclaim seeking enforcement of the agreement or else “hundreds of millions” in monetary damages. The Gilat counterclaim states: “Gilat strongly rejects all such allegations [from Comtech]. Gilat believes that no Material Adverse Effect under the Merger Agreement has occurred and that Comtech’s complaint is nothing more than an effort to avoid its clear contractual obligation to acquire Gilat, due to Comtech’s own rapidly deteriorating performance.”

“Gilat intends to vigorously defend its position in connection with the claims raised by Comtech and all related matters. Gilat also intends to file a counter claim against Comtech seeking, among other things, a declaration that Comtech cannot terminate the Merger Agreement and, if the merger is not consummated, Comtech should pay Gilat (on behalf of itself, its shareholders and optionholders) monetary damages (which are contractually uncapped) for all losses that Gilat and its shareholders and optionholders have suffered as a result of Comtech’s willful breaches of the Merger Agreement, which Gilat will assert amount to hundreds of millions of dollars,” adds the Gilat statement.

The sale to Comtech was approved in May by 99.7 per cent of Gilat shareholders.


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