Shares of CPI International Inc. soared more than 20 percent Monday after communications equipment maker Comtech Telecommunications Corp. offered to buy the antenna and high-frequency radio device maker for about $289 million in cash and stock.
Comtech says the acquisition will nearly triple the size of its segment devoted to RF microwave amplifiers — a technology used to boost the strength of satellite and broadband communications. The deal is expected to add to earnings and save $1 million to $2 million in the first year and between $5 million to $7 million annually by the second year after the deal is complete.
Comtech said the transaction will add an extensive portfolio of more than 4,500 microwave and power grid tubes, as well as establishing the company as a leading supplier of vacuum electron devices which are used in a number of products. And with roughly 40 percent of CPI's sales coming from replacement parts, spares and repairs, Comtech believes that stable cash flow will partially insulate it from shifts in market conditions.
The deal values Palo Alto, California-based CPI at $16.40 per share, a nearly 26 percent premium to the stock's $13.05 closing price on Friday. CPI has roughly 17.6 million shares outstanding, according to a recent securities filing, bringing the the equity value of the deal to $289.1 million.
Including debt, the companies value the deal at about $472.3 million.
CPI shareholders will get $9 per share in cash, plus a fraction of Comtech stock between 0.2382 and 0.2132 per share. Based on Comtech's closing share price of $31.06 on Friday, CPI shareholders would get $7.40 worth of Comtech stock for every share of CPI they own.
Comtech said it will fund the acquisition with about $372 million in cash and by selling 4.4 million common shares. It will book acquisition-related costs of $18 million to $22 million during the first year of the acquisition.
The companies said they plan no interruptions in any scheduled or committed product rollouts from either CPI or Comtech and intend to support all existing products and services.
CPI's senior executive management and corporate team are expected to stay in their current or similar roles and will work directly with Comtech management to manage the integration and restructuring of CPI's operations with Comtech's.
In afternoon trading, Comtech shares rose $1.02, or 3.3 percent, to $32.08. CPI shares spiked $2.60, or 20 percent, to $15.65.
Eds: SUBS headlines to CORRECT value of deal.