Comtech Announces $45 Million Strategic Investment and Exchange of Convertible Preferred Stock

Rhea-AI Summary

Comtech Telecommunications Corp. announced a $45.0 million investment by White Hat Capital Partners LP and funds affiliated with Magnetar, which strengthens the company's financial flexibility and supports its strategic initiatives in satellite ground station infrastructure and next-generation terrestrial and wireless solutions. The investment involves the exchange of all outstanding shares of Comtech’s existing convertible preferred stock for a new series of convertible preferred stock. The investment enhances Comtech's ability to capitalize on recent large contract awards and growing customer demand for its satellite communications technologies and next-generation terrestrial and wireless solutions. The investment terms include a conversion price of $7.99 per share for the preferred stock, a 9.00% dividend payable in kind, or a 7.75% dividend payable in cash at Comtech’s election, and an optional redemption date of October 31, 2028.

Financial Analyst

The recent $45.0 million investment in Comtech Telecommunications Corp. by White Hat Capital Partners LP and funds affiliated with Magnetar indicates strong shareholder confidence in the company's strategic direction. The conversion of outstanding shares of existing convertible preferred stock into a new series underlines a restructuring of the company's capital that aims to bolster financial flexibility. This move is particularly significant considering the 9.00% dividend rate (payable in kind) or 7.75% dividend rate (payable in cash), which is relatively high and thus suggests a strong commitment from the investors, albeit at a higher cost of capital for Comtech.

The conversion price of $7.99 per share provides insights into future equity dilution and the implied valuation of the company. Stakeholders should note the potential impact on earnings per share and the overall dilution effect once the preferred stock is converted into common stock. The optional redemption date of October 31, 2028, offers a timeline for when the company may aim to stabilize its capital structure post-investment.

Market Research Analyst

Comtech's focus on satellite communications technologies and next-generation terrestrial and wireless solutions places it within a competitive and fast-growing industry. The investment and subsequent financial flexibility may allow Comtech to more aggressively pursue its 'One Comtech' transformation strategy and capitalize on the growing demand in these sectors. The mention of recent large contract awards suggests that the company is gaining traction, which could position it favorably against competitors.

However, the market will be closely watching how effectively Comtech deploys the investment proceeds. The strategic use of funds to support working capital, repay debt and fuel growth initiatives will be key to the company's ability to deliver on its promises and maintain investor confidence. The market's reaction to this news will be telling of the perceived efficacy of Comtech's strategic initiatives and its operational execution capabilities.

Legal Expert

The involvement of multiple legal advisors, including Paul, Weiss, Rifkind, Wharton & Garrison LLP for Comtech and Sidley Austin LLP for the Special Committee of the Board, indicates the complexity and significance of the transaction. The legal structuring of the investment, particularly the terms of the convertible preferred stock, will have important implications for the rights of both current and future shareholders. The use of a Current Report on Form 8-K to disclose further details to the Securities and Exchange Commission underscores the transaction's importance and ensures regulatory compliance and transparency for investors.

Investment Enhances Comtech’s Financial Flexibility and Supports Its Strategic Initiatives in Satellite Ground Station Infrastructure and Next-Generation Terrestrial and Wireless Solutions

MELVILLE, N.Y.--(BUSINESS WIRE)-- January 22, 2024 -- Comtech Telecommunications Corp. (NASDAQ: CMTL) (“Comtech” or the “Company”), a leading global technology company providing terrestrial and wireless network solutions, next-generation 911 emergency services, satellite and space communications technologies, and cloud native capabilities, today announced a $45.0 million investment by current shareholders White Hat Capital Partners LP (“White Hat”), an investment firm focused on sustainable value creation in technology companies serving mission-critical applications, and funds affiliated with Magnetar, a leading alternative investment manager with over $14 billion of assets under management. In connection with the investment, the Company exchanged all outstanding shares of Comtech’s existing convertible preferred stock for a new series of convertible preferred stock.

This strategic investment enhances Comtech’s financial flexibility and strengthens the Company’s ability to capitalize on its recent large contract awards and growing customer demand for its satellite communications technologies and next-generation terrestrial and wireless solutions. Comtech expects to apply the proceeds of this investment across a range of initiatives which not only support near-term working capital needs and general corporate purposes, including the repayment of certain outstanding indebtedness, but also its growth prospects. The issuance of the new series of convertible preferred stock demonstrates the continued commitment of White Hat and Magnetar, and is an important step towards the completion of the Company’s previously announced process to refinance its existing Credit Facility and further increase its financial and operational strength.

Mark Quinlan, who currently serves as an appointee of White Hat and Magnetar on the Company’s Board of Directors, will retain his position on the Board. Mr. Quinlan is White Hat’s Co-Founder and Managing Partner and has more than 20 years of experience in the technology sector. He has provided valuable insight and experience to the Board of Directors since January 2022.

“We are grateful for this investment and endorsement of our strategy and team by two of our existing long-term shareholders,” said Comtech’s Chairman and CEO, Ken Peterman. “Magnetar and White Hat understand our Company, our end markets, and the potential of our One Comtech vision. With White Hat’s investment experience within the technology sector and Magnetar’s breadth of investment experience in both private and public markets and across asset classes and capital structures, we value their continued support and are excited to strengthen our relationship with them at this key inflection point for the Company.”

“Under CEO Ken Peterman’s leadership, the entire Comtech team has made incredible progress on its One Comtech transformation,” said Mr. Quinlan. “We recognize Comtech’s potential and believe this investment further supports the Company’s commitment to developing and delivering mission-critical solutions for its customers.”

Summary of Investment Terms

White Hat and Magnetar purchased $45.0 million of a new series of convertible preferred stock and exchanged all outstanding shares of Comtech’s existing convertible preferred stock for shares of the new series of convertible preferred stock. The preferred stock will be convertible into shares of Comtech common stock at a conversion price of $7.99 per share; carries a 9.00% dividend, payable in kind, or a 7.75% dividend, payable in cash, at Comtech’s election; and contains an optional redemption date of October 31, 2028. Further details will be included in the Company’s Current Report on Form 8-K to be filed with the Securities and Exchange Commission. That report will describe the investment in additional detail, including exhibits with copies of associated transaction documentation.

Paul, Weiss, Rifkind, Wharton & Garrison LLP is serving as legal advisor to Comtech and Sidley Austin LLP is serving as legal advisor to the Special Committee of the Board of Directors of Comtech. Willkie Farr & Gallagher LLP is serving as legal advisor to Magnetar and Schulte Roth + Zabel LLP is serving as legal advisor to White Hat.

About Comtech

Comtech Telecommunications Corp. is a leading global technology company providing terrestrial and wireless network solutions, next-generation 9-1-1 emergency services, satellite and space communications technologies, and cloud native capabilities to commercial and government customers around the world. Comtech’s unique culture of innovation and employee empowerment unleashes a relentless passion for customer success. With multiple facilities located in technology corridors throughout the United States and around the world, Comtech leverages its global presence, technology leadership, and decades of experience to create the world’s most innovative communications solutions. For more information, please visit www.comtech.com.

Forward-Looking Statements

This press release contains statements that are forward-looking in nature and involve certain significant risks and uncertainties, including with respect to the offering of securities, the intended use of proceeds and our current expectations, initiatives, strategies or future plans. No assurance can be given that the transaction will be completed, or that the proceeds from the offering will be used as indicated. Forward-looking statements are subject to numerous conditions, risks, and uncertainties, many of which are beyond the control of the Company, including those identified in the Company’s filings with the Securities and Exchange Commission. Forward-looking statements are also based on assumptions that may not be realized and involve risks and uncertainties that could cause actual results or other events to differ materially from the expectations and beliefs contained herein. Any forward-looking information in this press release is qualified in its entirety by the risks and uncertainties described in Securities and Exchange Commission filings. The Company undertakes no obligation to release publicly any updates or revisions to any forward-looking statements contained herein except as required by law.

PCMTL

View source version on businesswire.com: https://www.businesswire.com/news/home/20240122671989/en/

Investor Relations

Maria Ceriello

Investors@comtech.com

Source: Comtech Telecommunications Corp.

FAQ

What is the amount of the investment announced by Comtech Telecommunications Corp.?

Comtech Telecommunications Corp. announced a $45.0 million investment by White Hat Capital Partners LP and funds affiliated with Magnetar.

Who are the current shareholders making the investment in Comtech Telecommunications Corp.?

The current shareholders making the investment in Comtech Telecommunications Corp. are White Hat Capital Partners LP and funds affiliated with Magnetar.

What are the strategic initiatives supported by the investment in Comtech Telecommunications Corp.?

The investment supports Comtech's strategic initiatives in satellite ground station infrastructure and next-generation terrestrial and wireless solutions.

What are the terms of the investment in Comtech Telecommunications Corp.?

The investment involves the exchange of all outstanding shares of Comtech’s existing convertible preferred stock for a new series of convertible preferred stock. The preferred stock will be convertible into shares of Comtech common stock at a conversion price of $7.99 per share; carries a 9.00% dividend, payable in kind, or a 7.75% dividend, payable in cash, at Comtech’s election; and contains an optional redemption date of October 31, 2028.