Comtech Telecommunications Corp. provides business update on impact of Coronavirus and status of Gil
Comtech Telecommunications Corp. has provided a business update on the impact of the Coronavirus, including the withdrawal of its business outlook for its fiscal year ending July 31, 2020, and a status update on the Gilat Satellite Networks Ltd. acquisition.
Coronavirus Update and Withdrawal of Business Outlook for Fiscal 2020
Although deemed an essential business by the U.S. government, Comtech has modified its business practices (including prohibiting most employee travel, implementing work-from-home policies and requiring social distancing) with a view to the safety of its employees, customers, partners and suppliers.
To date, the primary impacts of the coronavirus pandemic on Comtech have been significant order delays and the inability of Comtech’s sales and marketing personnel to travel and/or meet with customers.
Due to travel bans and/or forced shutdowns at customer locations, Comtech has encountered difficulty in delivering products that had been previously ordered by its customers.
As a result of these conditions, Comtech has taken steps to reduce both direct and indirect costs at certain of its facilities. Additional cost reduction measures may be required.
In light of these developments, Comtech is withdrawing its guidance for the fiscal year ending July 31, 2020 previously issued on March 4, 2020.
Commenting on the coronavirus’ impact on Comtech’s business, Fred Kornberg, Chairman of the Board and Chief Executive Officer of Comtech Telecommunications Corp. stated, “Although Comtech is not immune to the disruption in the macroeconomic environment caused by the coronavirus, I believe Comtech’s long-term fundamentals remain excellent given its innovative and diversified product portfolio and its talented employees. I am grateful that our 911 business has been able to support first responders and healthcare providers across the United States as they are the true heroes in this crisis.” He added, “If this event has taught us anything, it is the importance of reliable, quality advanced communications equipment and infrastructure to the continuity of business operations - an area that Comtech has excelled in for decades.”
Status of the Gilat Acquisition
Comtech’s $800.0 million secured credit facility to be provided by Citibank, N.A., Manufacturers and Traders Trust Company (“M&T Bank”), Santander Bank, N.A., BMO Harris Bank, N.A. (“Bank of Montreal”), Regions Bank, Israel Discount Bank of New York and Goldman Sachs Bank USA has proceeded through full syndication and was oversubscribed. Although the definitive terms of the credit facility are still subject to being finalized, Comtech currently expects that the facility will consist of an $800.0 million revolver structure with no principal payments required for five years. At closing, Comtech expects total outstanding net debt of approximately $500.0 million.
The recent price decline in Comtech shares will have no impact on the number of shares to be issued to Gilat shareholders as merger consideration because Gilat and Comtech agreed to a fixed exchange ratio under the merger agreement. As such, the number of shares issuable to Gilat shareholders upon the close of the acquisition will approximate less than 20% of Comtech’s total shares outstanding.
Comtech and Gilat expect to finalize shortly a Form S-4 proxy statement/prospectus, a preliminary copy of which was previously filed with the U.S. Securities and Exchange Commission. The proxy statement/prospectus will be disseminated to shareholders of Gilat in connection with their meeting to vote on the acquisition.
Although the statutory waiting period under the Hart-Scott-Rodino Antitrust Improvements Act has expired, the transaction is still under the review of the Federal Antimonopoly Service of the Russian Federation. Receipt of regulatory approvals in Russia is a condition to closing the merger with Gilat.
Other conditions to closing remain to be satisfied and Comtech and Gilat continue to work to ensure such closing conditions can be met.