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UPDATE 2-Comtech to buy CPI International for $472 mln

By Mansi Dutta BANGALORE, May 10 (Reuters) - Telecom equipment maker Comtech Telecommunications agreed to buy smaller rival CPI International Inc in a cash-and-stock deal worth $472.3 million, to bulk up its RF microwave business. The offer of $16.40 per share represents a premium of 26 percent to CPI International's close Friday on Nasdaq. In its largest ever acquisition, Comtech said it would pay about $372 million in cash and issue about 4.4 million shares to CPI, with whom it has been in talks for the last three years. CPI makes microwave and radio frequency products for defense, communications, medical and other applications. The deal almost triples the size of Comtech's RF microwave amplifier segment. These products are used in radar jammers, air-to-ground satellite communications and a variety of other applications. "I think it's a good fit for (Comtech), significantly accretive, certainly on a cash basis," Needham & Co analyst Richard Valera said. "In terms of EPS, there's going to be a significant amount of acquisition-related intangible amortization that will depress the GAAP number pretty significantly." Relative to the return and accretion (CPI) can generate for them, the offer is perfectly reasonable, Valera added. Comtech expects to incur expenses of about $18.0 million to $22.0 million from the deal. It sees the deal generating over $50 million in earnings before interest, income taxes, depreciation and amortization (EBITDA) on an annual basis. Comtech added that all of CPI's existing debt is expected to be repaid upon closing of the transaction. CPI reported sales and EBITDA of $338.5 million and $56.4 million, respectively, for fiscal year ending Jan. 1, 2010. Once the transaction is consummated, Comtech expects CPI to deliver revenue of about $350 million annually. Comtech competes with E2V Technologies Ltd, Miteq Inc, Herley Industries Inc, Aethercomm and Empower RF Systems in the RF microwave amplifiers segment. Separately, Comtech reaffirmed its fiscal 2010 earnings forecast of $1.85 to $1.95 a share, on revenue of $740 million to $760 million, indicating that the deal is not expected to close in fiscal 2010. Shares of CPI, which were trading up 21 percent at $15.80 Monday, touched a 17-month high of $16 earlier in the session. Comtech stock was up 4 percent at $32.23 on Nasdaq. (Reporting by Mansi Dutta; Editing by Saumyadeb Chakrabarty, Unnikrishnan Nair) Keywords: CPI/TAKEOVER COMTECH (mansi.dutta@thomsonreuters.com; within U.S. +1 646 223 8780; outside U.S. +91 80 4135 5800; Reuters Messaging: mansi.dutta.thomsonreuters.com@reuters.net) COPYRIGHT Copyright Thomson Reuters 2010. All rights reserved.

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