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Why Gilat Satellite Networks Stock Dropped 14% Today

By Rich Smith – Jul 8, 2020 at 10:37AM

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Gilat's one-time merger suitor may be getting cold feet.

What happened

Shares of Gilat Satellite Networks (GILT 1.79%), a manufacturer of communications equipment -- specifically, satellite ground stations and related equipment -- saw its stock pummeled in Wednesday trading, closing the day down 14.4%.

The reason: Earlier today, Gilat rival Comtech Telecommunications (CMTL 2.97%), which is in the process of attempting to acquire Gilat, filed a complaint against its target alleging that Gilat is taking "certain actions" that might decrease its value to Comtech.  

Comtech also noted in its complaint that a "precipitous decline in Gilat's business since January 29, 2020" may give it grounds to terminate its offer to acquire Gilat.

Glowing red stock chart arrow trending down

Image source: Getty Images.

So what

Gilat thinks Comtech may be upset with Gilat's plan to sell or restructure its Russian subsidiary (reports today). However, Gilat says it has not actually seen Comtech's complaint, and thus cannot be certain of what, precisely, has provoked Comtech's lawsuit.

So what's really going on here? It would appear that Comtech is getting cold feet about its merger deal, and is seeking a way to wriggle out of it -- understandable given the state of the economy in this age of COVID-19, and the damage the recession has done to businesses of all stripes.

Now what

Still, Gilat insists that "Comtech is obligated to use its reasonable best efforts to consummate the merger, and that Gilat does not intend to sit idly and wait for the drop-dead date of the Merger Agreement." Based on today's share price action, however, it would appear that investors don't like Gilat's chances of forcing Comtech to go through with the deal -- and if Comtech is allowed to pull out, it's logical to assume that Gilat's share price would then drop.

Investors are therefore exiting the theater before that curtain falls.

Rich Smith has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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