Defense and transportation technology specialist Cubic Corp. (NYSE: CUB) is going private.
Evergreen Coast Capital Corp. and an affiliate of Vertias Capital have agreed to buy Cubic for approximately $2.8 billion in cash, the companies announced on Feb. 8. The deal includes the assumption of Cubic’s debt.
Evergreen is an affiliate of Elliott Investment Management L.P., which had been pursuing the business since last year. It was revealed Sept. 21 that Elliott had acquired a 15% stake in Cubic.
Evergreen and Veritas have offered $70 per share for Cubic, and the Cubic board has unanimously approved the deal. The price represents a 58% premium to Cubic’s unaffected closing stock price on Sept. 18 — the last trading day before news of Elliott’s purchase of a large stake was made public.
Cubic, which had $1.48 billion in revenue during 2020, provides technology to state and local transportation agencies. It also provides defense electronics to the United States and its allies. The business was founded by Walter Zable in 1949 and is now based in Kearny Mesa. Cubic will stay in San Diego, according to a statement issued by the buyers.
The transaction will be financed through a combination of equity and debt financing.
The deal is expected to close in the second quarter, following shareholder and regulatory approval.
Shareholder Friendly
“This transaction is in the best interests of our shareholders and provides them with a significant premium and liquidity — while accelerating future growth to the benefit of our employees and customers,” said Brad Feldmann, chairman, president and CEO of Cubic. “Our success in attracting a premier, deeply experienced 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. We look forward to partnering with Veritas and remain grateful to our customers for their trust and to our fellow Cubes for their unwavering commitment to delivering innovative, mission-critical solutions.”
On behalf of Elliott, Jesse Cohn said, “Elliott believes this outstanding transaction maximizes value for Cubic’s shareholders, and we are pleased to have engaged constructively with the company’s board and management to reach this outcome. We look forward to partnering with Veritas and the Cubic team as we work through Cubic’s next phase of growth as a private company.”
Elliott has entered into an agreement to vote its shares in support of the transaction.
“Cubic has an unparalleled history of delivering innovative technology-based solutions to address the mission-critical needs of the global transportation and defense markets,” said Ramzi Musallam, CEO and managing partner of Veritas. “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.”
Analysts See Bright Side
“We see the buyout announcement as a positive development for Cubic’s investors, considering the challenges ahead for the company,” wrote Ken Herbert, managing director for equity research with Canaccord Genuity LLC. “Both the company’s transportation and defense business segments are facing tumultuous periods ahead as the firm navigates ongoing depressed transit ridership and a likely reduced defense budget, which will be impactful to both military training sales and ground-based deployable SATCOM terminals like the GATR.”
Louie DiPalma, an analyst with William Blair & Co. LLC, indicated that Veritas and the Elliott affiliate may be getting a bargain.
“We believe that Cubic’s businesses over the long term are worth substantially more than the $2.9 billion implied enterprise value” of the deal, he wrote.
DiPalma noted that over the summer, Cubic shares traded as low as $31 “on the perception that the company’s public transit payments business would be crushed by the severe drop in public transit ridership.” The business, however, “has proved highly resilient.” Furthermore, transit authorities such as New York City’s Metropolitan Transportation Authority accelerated the implementation of Cubic’s contactless payment system.
J.P. Morgan Securities LLC is acting as lead financial adviser to Cubic and Sidley Austin LLP and Faegre Drinker Biddle & Reath LLP are acting as the company’s legal counsel. Raymond James & Associates Inc. provided the board with an opinion regarding the fairness, from a financial point of view, of the consideration offered to Cubic shareholders.
Skadden, Arps, Slate, Meagher & Flom LLP is acting as legal counsel to Veritas.
Gibson, Dunn & Crutcher LLP is acting as legal counsel to Evergreen.
Cubic also released financial results on Feb. 8. In its first quarter, which ended Dec. 31, the corporation reported sales of $318.8 million, down 3% year over year. Net loss from continuing operations attributable to Cubic was $13 million, compared to a net loss of $20 million in the same quarter last year.