The chances of US company Comtech Telecommunications Corp. (Nasdaq: CMTL) completing the $575 million acquisition of Israeli company Gilat Satellite Networks Ltd. (Nasdaq: GILT; TASE: GILT), which it announced in January, are rapidly diminishing.
The companies have yet to announce the cancellation of the deal. But yesterday Comtech filed a complaint against Gilat in the Delaware Court of Chancery seeking a judgment that actions, if taken by Gilat, would breach Gilat’s obligations under the merger agreement. The complaint added, "The actions at issue in the complaint relate to Comtech’s pending application for required regulatory approval in the Russian Federation." It is this regulatory approval that has been delaying completion of the deal.
The complaint adds, "Comtech is assessing whether the precipitous decline in Gilat’s business since January 29, 2020 gives rise to a Material Adverse Effect."
Gilat responded aggressively, saying that Comtech's claims are groundless and that it is violating its commitments.
Meanwhile, Gilat's share price fell 14% yesterday, giving a market cap of $290 million - half the agreed acquisition price.
Gilat, controlled by First Opportunity Funds (FIMI), provides communications solutions, mainly using satellite technology.
If the deal is cancelled, Comtech, according to the agreement, is not obligated to pay Gilat compensation or any fine, although it could try to sue in the courts for the damage done to shareholders. The main shareholders in Gilat are FIMI (33.9%), Mivtach-Shamir (9.7%), Renaissance (5.35) and chairman Dov Baharav (1.9%).
This latest dispute has erupted several days after CEO Yona Ovadia announced that he was stepping down immediately to be replaced by CFO Adi Sfadia.
This would be the second time that a sale of Gilat has fallen through. Back in 2008, Gilat was sold to a group of US investors for $475 million, but the deal broke down in acrimony before it was completed. In a compromise settlement, Gilat received $20 million on the non-completion of the acquisition.
Looking ahead, Gilat will have to wait and see what the Delaware court rules, while also hoping that the Russian regulator approves the deal sooner rather than later, and certainly before October, when the deal has to be completed. Gilat is likely to face a long court battle if it wants to win compensation. From the investors' point of view, the way the share price has fallen, it would seem the deal is as good as cancelled.
Published by Globes, Israel business news - en.globes.co.il - on July 9, 2020
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