[Satellite News 09-04-08] The termination of the merger agreement between Gilat Satellite Networks and a private equity consortium could “get somewhat ugly,” CEO Amiram Levinberg said. Gilat announced Aug. 29 that it was terminating the agreement and will seek a termination fee of more than $47 million, which equates to 10 percent of the value of the deal.
    “It is disappointing, more than frustrating, after this type of an effort that this is the result,” Levinberg told Satellite News.“The deal has been terminated. The remedies and the agreed upon penalty that we think the investors owe the company is a substantial amount of money. We have asked for the remedies, and we will see what the reaction of the investors will be. They have said the conditions of the deal have not been met, so they see the situation differently.”
    Gilat signed an agreement in March to be acquired for an aggregate value of $475 million in an all-cash transaction by an American and Israeli investment group. Gilat shareholders would have received $11.40 per share in cash, representing a premium of approximately 38 percent over Gilat’s average closing share price during the 30 trading days ended April 25. Gilat’s shareholder approved the deal in July, and there was no sign of trouble at that point.
    “I would say that we were taken somewhat by surprise,” Levinberg said of the termination. “This agreement was heavily negotiated, and there was a very long due diligence process which took 10 to 11 months. It was a fairly intense process with consultants and bankers and that the like. We signed a definitive agreement earlier this year. The deal was pending a few approvals. Once we informed the potential shareholders we fulfilled all our conditions, they did not show up for closing. They made a number of new verbal proposals, which were substantially different from the definitive agreement, and these proposals were rejected by our board after they found them not in the best interests of our shareholders.”
    The consortium of investors: Gores Group LLC; Mivtach Shamir Holdings Ltd.; companies affiliated with Roy Ben-Yami, Ami Lustig and Eytan Stibbe; and DGB Investments Inc., tried to change certain conditions of the deal, which led to the end of the agreement, Gilat said.
    Levinberg expects that Gilat will have some difficulty in collecting the termination fee. “When you seek around $47 million, even when it is an agreed upon termination fee, the other side is not usually rushing to take the money from their pockets and hand it over to you,” he said..

Next Move
Gilat will not automatically look for another suitor, Levinberg said. “The whole process was initiated by one of the investors. We didn’t initiate this process,” he said. “Once we were approached, our board sought advice with bankers and consultants. We selectively looked at this alternative. The company was not on the block when we started this. We had and still have many alternatives in terms of how to create shareholder value. As a responsible public company, when you are approached by serious investors, and maybe that was not the case here, you consider it, and if you think it will optimize shareholder value, you go through the motion. At this point we will focus more on our other alternatives, whether these are by expanding our business from within or by means of certain acquisitions.”
    Gilat may even look to make acquisitions itself and had been exploring other growth options prior to the now-scuttled agreement, said Levinberg. “We want to find new growth opportunities for the company, whether in existing markets or others,” he said. “As an example of a new market, we are looking at things like WiMax offerings, integrated with VSAT solutions. Another example is expanding into the government market, whether in the [United States] and/or abroad. This is new in nature for us and may lead us to acquisitions. We have a very strong balance sheet, and we can afford to make moves along these lines.”
    Gilat’s recorded revenues of $65.6 million in its most recent quarter, a drop of almost $5 million compared to the same quarter a year ago. Net profits slipped from $5.5 million to $1.3 million in the same period. The company did not meet expectations, but Levinberg is optimistic that things will improve in the second half of the year, particularly if a lucrative deal with the Colombian government to provide telephony and Internet access in rural areas comes to fruition.
    “This is a good company with a good future,” said Levinberg. “We have a very strong balance sheet with $180 million in cash, and I think we have many opportunities in front of us.”