SECOND SUITOR UPS ANTE IN BID TO BUY CUBIC CORP.
ST Engineering offers $2.41B to acquire San Diego tech firm
A second suitor has surfaced with a sweetened offer to acquire the longtime San Diego defense and transit technology contractor Cubic Corp.
Publicly traded since 1959, Cubic said Monday it received an unsolicited buyout bid of $76 per share in cash from Singapore Technologies Engineering Ltd., which equates to $2.41 billion.
That tops an earlier $70 per share offer from two private equity firms — Veritas Capital and Elliott Management affiliate Evergreen Coast Capital Corp. — to acquire Cubic in a deal that would take the company private.
Last month, Cubic's board of directors accepted the Veritas/Elliott deal. It calls for the private equity firms to pay $2.21 billion in cash and assume roughly $600 million of Cubic debt. The board recommended that shareholders vote in favor of the acquisition in an upcoming special meeting of stockholders.
Now, however, Cubic's board will negotiate with Singapore-based ST Engineering, given the higher offer. Those discussions will center on the timing of the transaction and potential regulatory roadblocks.
Ken Herbert, an analyst with investment firm Canaccord Genuity, said Cubic's investors are likely to be receptive to ST Engineering's proposal.
“Given overall market turmoil at the moment, particularly among technology
stocks, the nearly 9 percent increase over Veritas’ offer looks particularly enticing to the firm’s stockholders,” said Herbert in a research report.
Taking additional time to consider ST Engineering’s proposal, however, could threaten the existing deal on the table from Veritas/Elliott, said Herbert, “especially considering the growing risk from rising interest rates to the performance of the broader market and tech sector.”
Cubic supplies tap-topay fare gates, smart-payment cards, back-office management solutions and smart cities products to some of the world’s largest transit agencies. Customers include subway, train and bus operators in New York, London, Sydney, Chicago and San Francisco.
Cubic also has a defense arm that provides pilot and soldier training technologies, secure communications, and surveillance gear and mission support services to the U.S. military and its allies.
ST Engineering wants to buy Cubic for the transportation business. It plans to sell the defense operations to an affiliate of Blackstone Tactical Opportunities immediately after a transaction closes.
In a statement, ST Engineering said it intends to retain the Cubic name and make San Diego the global headquarters of its Smart Mobility business.
“We will further strengthen Cubic’s leading position in digital mobility payments and smart mobility applications by combining the best technology and talent from both organizations,” the company said.
Cubic recently built new $100 million headquarters in Kearny Mesa. The company employs roughly 1,500 workers in San Diego and 6,000 globally.
There could be red flags for regulators in a Cubic-ST Engineering tie-up, however, over foreign ownership of certain transit technologies. According to Bloomberg News, ST Engineering is half-owned by Temasek Holdings, a Singapore stateowned investment firm. Any transaction between the two companies would be subject to review by the Committee on Foreign Investment in the U.S., or CFIUS.
In a statement, ST Engineering said that it has received CFIUS approval for 11 past acquisitions of U.S. companies, including three buyouts in 2019.
For now, Cubic’s board continues to urge shareholders to support the Veritas/ Elliott transaction. The board is not making any recommendation with respect to the ST Engineering proposal at this time, and Cubic shareholders do not need to take any action yet.
In proxy documents, Cubic indicated that uncertainty and regulatory concerns around other potential offers pushed it to accept the Veritas/Elliott bid, said Herbert, the Canaccord Genuity analyst.
“While the proxy implies that Veritas and Elliott were unlikely to raise their $70 bid, the offer from ST Engineering has changed the dynamics,” he said.
News of the additional suitor sent Cubic’s shares up nearly 8 percent on Monday. They closed at $75.20 on the New York Stock Exchange.