Cubic Corp. [CUB] on Monday said it has entered into an agreement with the private equity firms Veritas Capital
and Evergreen Coast Capital to be acquired for $70 per share in cash, a deal with an enterprise value of $2.8 billion including debt.
For Veritas, the deal for the defense and transportation technology company follows the $2.3 billion acquisition last week of Northrop Grumman’s [NOC] federal information technology (IT) services business and a pending $7.1 billion deal for the government services company Perspecta [PRSP]. Both services businesses will be combined with Peraton, which is a portfolio company of Veritas.
Cubic’s announcement it has agreed to be acquired follows its disclosure last September that Elliott Investment Management and an undisclosed private equity firm stated an interest in acquiring the company. At the time, Elliott acquired equities amounting to 15 percent of Cubic’s outstanding stock, prompting the company to adopt a poison pill plan to prevent the investment firm from acquiring a larger stake and to give its board of directors’ time to assess what would be in the best interest of its shareholders going forward. Elliot Management oversees Evergreen Coast Capital, its private equity affiliate.
In the end, Cubic’s board and management along with the private equity investors came to agreeable terms.
The $70 per share price for Cubic’s stockholders represents a 58 percent premium to the closing price of the company’s stock on Sept. 18, 2020, the last trading day before it disclosed the third-party interest in potentially acquiring the company. In January, Cubic’s stock price approached $67 per share several times.
“This transaction is in the best interests of our shareholders and provided them with a significant premium and liquidity, while accelerating future growth to the benefit of our employees and customers,” Bradley Feldman, chairman, president and CEO of Cubic, said in a statement. “Our success in attracting a premier, deeply experience partner and securing a transaction at this premium reflects the positive momentum of our business. Although last fiscal year brought unprecedented challenges, Cubic was able to build on our strengths, protect our people, serve our customers and deliver a value-maximizing deal for our shareholders.”
For good chunks of 2018 and 2019, Cubic’s share price was above $70 per share.
Ramzi Musallam, CEO and managing partner of Veritas, said in a statement that “We look forward to leveraging our expertise in the government technology market, a key focus of Veritas since our inception, in partnership with the team at Cubic to accelerate product development and drive growth as Cubic continues to improve the quality of global transportation systems and to deliver innovative defense solutions.”
In its fiscal year that ended Sept. 30, 2020, Cubic swung to a $3.7 million loss, 12 cents earnings per share (EPS) from $51.1 million ($1.67 EPS) in net income the year before. Earnings were lower due to a real estate gain in 2019 and impacts from the COVID-19 pandemic. Adjusted per share earnings for FY ’20 was $3.32.
Sales for the year were essentially flat at $1.5 billion. More than 50 percent of the company’s sales, $840.9 million, were in the transportation segment, with the remainder, $635.3 million, in the two defense businesses, which provide training and C4ISR solutions.
When it reported its fiscal year 2020 results last November, Cubic forecast sales of around $1.6 billion this year and adjusted earnings between $3 and $3.60 EPS.
Cubic will remain headquartered in San Diego.
The acquisition is expected to close during the second quarter of 2021 pending shareholder and regulatory approvals. Cubic’s board has approved the deal.
Cubic’s lead financial adviser on the deal is J.P. Morgan Securities.