The company that is supposed to acquire Gilat Satellite Networks Ltd. (Nasdaq: GILT; TASE: GILT), US-based Comtech Telecommunications Corp., has filed a revised complaint in the Court of Chancery in the State of Delaware. Previously, Comtech only asked the court to prevent Gilat from taking certain actions. Now, it is asking that the court should declare that it is not obliged to complete the deal, because of a "material adverse effect", as defined in the merger agreement, that it claims arises from Gilat's poor financial results, caused by the Covid-19 pandemic.
Gilat continues to oppose Comtech's claims forcefully. It says that there has been no material adverse effect, 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."
In its statement following Comtech’s amended application to the court, Gilat says that Comtech's "continuous willful breaches" are causing significant monetary damage to Gilat and its shareholders that is expected to amount to hundreds of millions of dollars unless the merger is consummated.
Gilat states that it "intends to vigorously defend its position in connection with the claims raised by Comtech and all related matters." It says that it 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, that "Comtech should pay Gilat (on behalf of itself, its shareholders and optionholders) monetary damages 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."
Last week, Comtech sought remedies, including an order forbidding Gilat from actions in connection with obtaining approval from the regulatory authority in Russia (FAS) for the deal, without which the deal cannot be completed. "While Gilat has not interfered or taken any action to interfere with Comtech’s pending application with the Russian Federal Anti-Monopoly Service (FAS) or otherwise breached the Merger Agreement, Gilat believes that Comtech has willfully breached its obligations under the Merger Agreement so as to attempt to ensure that FAS approval is not timely obtained and Comtech will not be required to consummate the merger," Gilat states.
Comtech announced the acquisition of Gilat in late January, in a cash and shares deal valuing Gilat at $577 million. After the fall in Comtech's share process over the past few months, the deal would be worth $470 million if completed now, while Gilat's market cap is currently $284 million, so that the damage to its shareholders is $186 million, before taking into account the costs Gilat has incurred because of the merger.
Published by Globes, Israel business news - en.globes.co.il - on July 12, 2020
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