Comtech Telecommunications Corp. (NASDAQ: CMTL) and its wholly owned subsidiary, Convoy Ltd. filed a complaint in the Delaware Court of Chancery against Gilat Satellite Networks Ltd. on July 7, 2020. The complaint relates to the agreement and plan of merger dated January 29, 2020 between Gilat and Comtech providing for the acquisition of Gilat by Comtech and seeks a declaratory judgment that certain actions, if taken by Gilat, would breach Gilat’s obligations under the Merger Agreement.
The actions at issue in the complaint relate to Comtech’s pending application for required regulatory approval in the Russian Federation.
The complaint also states that Comtech is assessing whether the precipitous decline in Gilat’s business since January 29, 2020 gives rise to a Material Adverse Effect as defined in the Merger Agreement (“MAE”) on Gilat and, if so, Comtech’s rights regarding an MAE.
Comtech amended its complaint inthe pending lawsuit against Gilat on July 13, 2020, adding to the complaint a request for a declaratory judgment that Gilat has suffered a MAE. The amended complaint alleges that this is due in significant part (but not entirely) to the enormous damage the COVID-19 pandemic has done to the airline industry – an industry upon which Gilat is disproportionately dependent compared to its peers and other companies in the industries in which it competes. As a result, the amended complaint alleges that Comtech is not required to close on the acquisition of Gilat.
The amended complaint retains Comtech’s earlier request for a declaratory judgment that certain actions, including unilaterally interfering in Comtech’s application for Russian regulatory approval and/or disposing of and/or restructuring Gilat’s business operations in Russia, if taken by Gilat, would breach Gilat’s obligations under the Merger Agreement.
Comtech believes that it remains in compliance with all of its obligations under the merger agreement with Gilat. Further, without waiver of its rights as set forth in the Amended Complaint, unless and until its merger agreement with Gilat is terminated, Comtech intends to continue to comply fully with its obligations under the merger agreement, including all obligations with respect to seeking Russian regulatory approval.
In a statement, July 12, Gilat Gilat strongly rejected the allegations in the Comtech suit. Gilat believes that no MAE under the Merger Agreement has occurred and that "Comtech’s complaint is nothing more than an effort to avoid its clear contractual obligation to acquire Gilat, due to Comtech’s own rapidly deteriorating performance."
Gilat said that it intends to file a counter claim against Comtech seeking, among other things, a declaration that Comtech cannot terminate the Merger Agreement and, if the merger is not consummated, Comtech should pay Gilat (on behalf of itself, its shareholders and optionholders) monetary damages (which are contractually uncapped) for all losses that Gilat and its shareholders and optionholders have suffered as a result of Comtech’s willful breaches of the Merger Agreement, which Gilat asserts to amount to hundreds of millions of dollars.
