Cubic Corp., one of San Diego’s oldest publicly traded companies, said Monday that it is being acquired by two private equity firms in an all-cash deal valued at $2.8 billion, including the assumption of debt.
Veritas Capital of New York and Evergreen Coast Capital Corp. agreed to pay $70 per share in cash for Cubic, which will become a private company after the transaction.
Evergreen Coast is a tech-focused private equity fund affiliated with giant activist investor Elliott Management. In September, Cubic announced that Elliott had accumulated 15 percent of Cubic’s stock and was seeking to acquire the company.
Cubic adopted a poison pill, in part to prevent Elliott from accumulating an even larger stake to use as leverage in negotiations. Still, Cubic emphasized at the time that the poison pill was tailored to allow its board to consider fair buyout offers.
The deal is expected to close in the second quarter, subject to the approval of shareholders and regulators. Cubic’s board of directors unanimously supports the acquisition, and Elliott Management said it would vote its shares in favor of the transaction.
Perhaps best known as the provider of the Top Gun fighter pilot training system, Cubic supplies a range of defense training technologies, defense communications gear and mission support services to the military.
In addition, the company makes fare gates, back-office fare collection technology and other smart cities products for some of the world’s largest mass transit agencies. Customers include subway, train and bus operators in New York, London, Sydney, Chicago and San Francisco.
Publicly traded since 1959, Cubic will remain based in San Diego, where it recently built new $100 million headquarters in Kearny Mesa. The company employs roughly 1,500 workers in San Diego and 6,000 globally.
Ken Herbert, an analyst with Canaccord Genuity, sees the acquisition as positive for Cubic investors given the headwinds that are ahead for the company.
“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 impact both military training sales and ground-based deployable satellite communications terminals like GATR,” he said.
Transit ridership is down because of the COVID-19 pandemic, said Herbert, and investors are worried that strained municipal budgets.
While Cubic’s defense business is strong, the likelihood of lower defense spending means the timing of the acquisition makes sense, he said.
“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 Cubic Chairman and Chief Executive Bradley Feldmann in a statement. “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.”
Veritas Capital invests in companies that provide critical products and services, primarily technology to government and commercial customers worldwide in sectors including health care, national security, software, education, energy, and aerospace and defense.
“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,” said Ramzi Musallam, chief executive and managing partner of Veritas.
The transaction will be financed through a combination of debt and equity. It represents a 58 percent premium over Cubic’s stock price on Sept. 18, the last day of trading before Cubic disclosed buyout interest from Elliott Management, with $42 billion under management.
Elliott’s Jesse Cohn said Cubic’s board and management “engaged constructively” to reach an agreement.
Cubic announced the acquisition Monday before markets opened. Its share gained nearly 10 percent to close at $69.60 on the New York Stock Exchange.
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Longtime San Diego tech firm Cubic Corp. being acquired in $2.8 billion deal - The San Diego Union-Tribune
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