Outerbridge Launches Comtech Contest After Urging Review

The upstart activist is seeking to install a minority slate of three directors on the company’s board and The Deal has learned that potential interested buyers have expressed an interest in parts of the business.

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Outerbridge Capital Management LLC on Wednesday, Sept. 8, nominated a minority director slate at Comtech Telecommunications Corp. (CMTL) after urging the satellite ground station and communications company in June to consider a sale.

The activist fund is seeking to install Wendi Carpenter, a founder of consulting firm Gold Star Strategies LLC; Sidney Fuchs, chairman of satellite communications company Eutelsat America Corp.; and Jonathan Wackrow, COO of the risk advisory unit of management consulting firm Teneo Holdings LLC.

According to a person familiar with the situation, some companies have expressed an interested in buying parts or, possibly together with a partner, all of Comtech, which has three disperse business units: a 911 call routing business, a military communications division and a satellite ground station unit.

The New York insurgent fund, led by manager Rory Wallace, owns about 4.6% of Comtech, including options. In June it issued a letter arguing that a “robust process to explore strategic alternatives” would produce a better outcome for shareholders than the “status quo.”

At least one of Wallace’s candidates has some M&A experience. Fuchs previously served as CEO and director of defense technology firm MacAulay-Brown Inc., which was acquired by Veritas Capital Fund Management LLC in 2018.

According to FactSet Research Systems Inc., Melville, N.Y.-based Comtech has posted total returns of 24% and 68% in 2021 and over the past 12 months.

The company has been awarded a number of large contracts in recent months, including a $35.8 million contract it received in July to deploy 911 technologies and services.

Even so, Outerbridge argued in a letter Wednesday that Comtech has “tremendous upside potential” that has failed to materialize due to the board’s “lack of experience and relevant industry expertise.”

Already Comtech appears to have taken steps under pressure from Outerbridge. In July, roughly a month following the activist’s first’s letter to the company, Comtech announced it was installing Judy Chambers, managing principal of investment advisory firm Meketa Investment Group, on its board at the same time that three incumbent directors, Edwin Kantor, Ira Kaplan and Robert Paul, were retiring.

Comtech’s CEO, Fred Kornberg, is 85 years old, according to relationship mapping service BoardEx, a sister company to The Deal. It is unclear whether Comtech has a succession plan to replace him.

The Deal had noted in June Outerbridge could launch a contest by a Thursday nomination deadline and that Kantor, 89; Kaplan, 85; and Paul, 79, could be targeted for replacement, in part due to their serving on the board for 20, 19 and 15 years, respectively. Delaware-incorporated Comtech’s annual meeting is expected to take place in December.

The 911 call routing business could be attractive to Motorola Solutions Inc. (MSI), Comtech’s biggest competitor for 911 call routing, the person said. In addition, Everbridge Inc. (EVBG), a software company that provides info about critical events to help with personal safety, could be interested in the unit as well.

Comtech’s government communications unit might be attractive to both Raytheon Technologies Corp. (RTX) and Kratos Defense & Security Solutions Inc. (KTOS), which could also seek out the satellite ground station unit. Raytheon and Comtech together represent a duopoly for so-called troposcatters, a WiFi communications equipment unit for military purposes.

Comtech in January 2020 struck a deal to buy rival Gilat Satellite Networks Ltd. (GILT) but canceled the merger in October amidst the Covid-19 pandemic. Gilat’s largest business involves developing flight connectivity for airlines, which struggled amidst the pandemic. As part of the cancelation, Comtech paid Gilat a $70 million termination and settlement fee.

The person noted, however, that Gilat, as well as Teledyne Technologies Inc. (TDY) and ViaSat Inc. (VSAT), could be interested in buying Comtech’s satellite ground unit business. Also, CPI International Inc., which is owned by PE firm Odyssey Investment Partners LLC, could be interested in the unit.

Noble Capital Markets Inc. analyst Joe Gomes told The Deal in June that it might be difficult to find one buyer for Comtech because of its disperse business units. He also noted that a combination of Motorola’s 911 business with Comtech’s similar operation could raise antitrust concerns.

Gomes said some opportunities exist for Comtech in the near term that could be “game changers.”

Outerbridge doesn’t have much experience with contests. In 2020, it settled a change-of-control contest with Barnes & Noble Education Inc. (BNED) in a deal that added two of four dissident director candidates. The fund, which continues to hold 9.95%, likely launched its campaign to drive a strategic review, but the college bookstore chain remains independent, with its shares trading up recently at $10.33 a share after the company reported Sept. 2 that it beat sales expectations for its first quarter.

Comtech shares were down 1.5% to $25.05 on Wednesday afternoon.

This article originally was posted on The Deal on September 8, 2021 by Ron Orol. View the original article here.

Follow Ronald Orol on Twitter and LinkedIn.

About the author

Ronald Orol
Senior Editor at | + posts

Ronald Orol leads coverage of activist hedge fund managers, a high-profile group of corporate investors who press for blockbuster deals and were the subject of his book “Extreme Value Hedging: How Activist Hedge Fund Managers Are Taking on the World.” Ron produces the Activist Daily and Activist Weekly briefings, which offer exclusives, trend pieces and breaking analysis about insurgent investors and their M&A efforts. Ron also authored “Corporate Governance in the Era of Activism,” a digital handbook for CNBC’s Jim Cramer. He previously worked as a financial regulation and activism reporter at MarketWatch and Dow Jones Newswires.

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Outerbridge Launches Comtech Contest After Urging Review

The upstart activist is seeking to install a minority slate of three directors on the company’s board and The Deal has learned that potential interested buyers have expressed an interest in parts of the business.

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