Gilat Files Suit After Investment Group Refuses to Pay Termination Fee

[Satellite News 11-05-08] Gilat Satellite Networks has filed lawsuits against Mivtach Shamir Holdings, LR Group, Gores Capital Partners, and DGB Investments Inc., accusing the companies of failing to pay a termination fee due to Gilat after a deal to purchase the company fell through, Gilat announced Nov. 5.
    The consortium of investors entered an agreement in March 2008 to purchase Gilat for an aggregate value of $475 million in an all-cash transaction. Under the terms of the agreement, Gilat shareholders would have received $11.40 per share in cash, a premium of about 38 percent over Gilat’s average closing share price during the 30 trading days ended April 25, 2007.
    In August 2008, the group of investors informed the company that it would not close the merger transaction because Gilat had not met conditions precedent to the purchase. Gilat said that the purchasers made a number of new proposals during the procurement process, which were substantially different from the definitive agreement. These proposals were rejected by Gilat’s as not in the best interest of the company’s shareholders.
Gilat then informed the consortium that it had 72 hours to complete the definitive merger agreement or Gilat would seek a $47.3 million termination fee, which the buyers are now refusing to pay.
    On Oct. 19, a lawsuit was filed in the district court of Jerusalem by the investment group against Gilat and its 20 percent shareholder, York Capital Management. The investment consortium claim damages based on the amounts they would have been paid had the merger with a consortium of buyers closed. That case has yet to reach trial.
Gilat CEO Amiram Levinberg told Satellite News that the upcoming legal battle could get ugly. “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.
    A legal victory by Gilat could come at no cost to the company. According to Levinberg, Gilat did not initially seek to be bought out.
    “Once we were approached, our board sought advice with bankers and consultants,” he said. “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’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.”
    No court date has been set for Gilat’s lawsuit. Representatives of the investor group could not be reached for comment.