Comtech (CMTL) - Rejects Acacia Offer

Rejects Acacia. Comtech's Board has unanimously rejected Acacia Research Corporation's October 29th offer to purchase Comtech for $30 per share. Comtech's new Board, including a representative from Outerbridge, concluded Acacia's offer "grossly undervalues the Company and is not in the best interest of Comtech's shareholders." Not A Surprise. We are not surprised by the rejection as, at the time of the offer announcement, we had noted that Outerbridge had originally valued Comtech in the $32-$41 range and subsequently had valued Comtech's NG911 business alone as worth more than its previously stated range.What's Next? Acacia is backed by Starboard Value, a hedge fund well known for its ability to complete deals. With CMTL shares right back to the level prior to the Acacia offer, could an improved offer become more attractive to shareholders? With Outerbridge now onboard with Comtech, the hurdle rate has become higher though as the voting interest of D&O's, the preferred stock holders, and Outerbridge is estimated at roughly 23%.Future Remains Bright. Comtech's future prospects remain bright, in our view. Both the NG911 and satellite ground station equipment businesses are entering long-term upswings, with the NG911 market expected to grow more than two times by 2026 reaching $1.7 billion and the satellite ground station equipment market projected to grow by nearly two times to $9 billion by 2029. Comtech is well positioned to capitalize on these growth trends.Maintaining Market Perform. As we too believe the Acacia offer to be insufficient and given our expectations for difficult comparisons during the first half of fiscal 2022, we are maintaining our Market Perform rating. While we continue to believe in the long-term prospects of the Company, based on our operating expectations, we think the shares will remain in a narrow range until positive operating momentum materializes. Read More >>