A few years ago, Telit Communications (AIM: TCM) marked its automotive division as a growth engine. Late last week, following several months of rumors, the company officially announced the sale of the division for $105 million in cash. The purchaser is Chinese company TUS International. The deal is slated for completion by the end of the year.
Telit develops and produces products for communications between electronic devices (M2M), including Internet of Things (IoT) applications. The company's share price was up 3.5% in London trading after the deal was annouced, pushing its market cap up to £223 million (NIS 1.1 billion). Despite Friday's surge, the current share price is 38% lower than a year ago, shortly before an upheaval in the company began.
The company failed to meet the analysts' forecasts and its share price plunged. It was later learned that dominant CEO Oozi Cats had been forced to resign following a indictment filed against him in the US, which he had concealed. In the succeeding months, the company published another profit warning, announced that it was being investigated by UK regulators, and that it intended to sell its automotive division.
In its report to the AIM exchange on Friday, Telit said that the deal would include the transfer of assets and employees from its R&D and sales departments deployed in a number of countries. Telit added that the division being sold had generated $63.2 million in revenue in 2017, and its 2017 adjusted EBITDA had amounted to $10.1 million, compared with $31.9 million in revenue and $2 million in EBITDA in 2016.
The automotive division made a $2.1 million after-tax profit in 2017, compared with a $1.9 million loss in 2016. Telit stated that with the completion of the deal, the proceeds would be used to reduce the company's $25 million debt and strengthen its balance sheet.
Telit entered the auto sector in late 2013 by acquiring activity in it from NXP Semiconductor for $9 million and proceeded to invest more in developing solutions in the sector. Late last year, when "The Financial Times" reported that Telit was planning to sell the division, the company confirmed the report and said that it was considering all of its activities in order to substantially streamline its business and reduce its cost base. The question arises whether Telit is likely to sell other activities in the future.
Telit CEO Yosi Fait said, "The sale of the auto division is part of the business focus process the company has been undergoing for the past year. This transaction will significantly reduce our debt and provide us with the financial flexibility to focus our resources and accelerate the integration of our hardware and IoT services product lines in order to strengthen our leading position in the end-to-end IoT solutions space.
"The world of companies and organizations - both industrial and commercial companies and government agencies - will implement an IoT strategy in the coming years in order to streamline, generate cash flow from new sources, and be innovative in service and product. Telit will be a leading provider helping various entities carry out this strategy."
Telit finance director and chief corporate development officer Yariv Dafna led the deal together with the Rothschild & Co. investment bank as an exclusive financial advisor. Telit receive legal advice from the CMS international law firm and Adv. Yossi Weinstock, a partners in the corporate licensing group at the Pearl Cohen Zedek Latzer Baratz law firm.
Published by Globes [online], Israel business news - www.globes-online.com - on July 15, 2018
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