Aviat Failed to takeover Ceragon Networks

Above: Ceragon’s 5G antenna and Zohar Zisapel, the chairman of the board

the chairman After weeks of tension and mutual accusations, the extraordinary general meeting (EGM) of Ceragon Networks’ shareholders, closed the door of opportunities and rejected the US-based Aviat Networks proposal to acquire Ceragon for $235 million. In fact, after the board had rejected the offer earlier this year, Aviat went to the public market and purchased Ceragon’s shares representing 5% of the company’s shares. Following the move, it called for an EGM in order to appoint five new directors, who support the proposed deal.

This is a classic move in the world of hostile takeovers, but this week it proved to be a wrong move: At the EGM, at least 80% of the shares voted against Aviat’s proposals, and more than 90% voted against most of Aviat’s proposals. Aviat’s director nominees received support from less than 15% of total shares outstanding, and less than 10% of total shares outstanding excluding Aviat’s own stake.

Ceragon provides wireless backhaul and fronthaul wireless transport solutions for 5G & 4G networks operated by more than 400 service providers and more than 800 private network owners. Revenues of Q2 2022 were $70.7 million, up 3.1% from $68.6 million in Q2 2021 and up 0.6% from $70.3 million in Q1 2022. The company reaffirmed its 2022 revenue guidance of $300-$315 million, and 2023 revenue guidance of $325-$345 million. “Our 5-year revenue target is approximately $500 million.”

Aviat is trying a Hostile Takeover of Ceragon

US-based Aviat Networks, announced it has submitted a nonbinding proposal to acquire all the outstanding shares of Ceragon Networks for $2.80 per share in cash. Aviat holds more than 5% of Ceragon’s outstanding shares as of June 24, 2022, making it Ceragon’s third largest shareholder. The total amount of the deal is $235 million. The two companies are competitors in the market of wireless transport solutions.

Aviat published its attempts to acquire Ceragon following earlier offers that were declined. Aviat has called for an extraordinary general meeting of Ceragon shareholders for the purpose of increasing the size of the Ceragon board, removing three of Ceragon’s current directors, and electing its nominees to evaluate proposal.

“Over the past year, we have sought to engage on numerous occasions with Ceragon’s Board and management team to negotiate terms for a transaction that we are confident would deliver meaningful near- and long-term value for shareholders of both companies,” said Aviat President and CEO Peter Smith. “We have twice attempted to reasonably address concerns voiced by Ceragon, and have met only with delay and rejection.”

Failed meeting in Israel

“Along with Aviat’s Chairman, I traveled to Israel last week to meet in person with Ceragon’s Chairman, CEO, and a member of its Board. They refused to engage with us in constructive discussions, instead making further demands for unorthodox and off-market provisions that seem intended only to delay, leaving us with no other option but to make Ceragon shareholders aware of our proposal.”

Peter Smith sent a letter to Zisapel and the CEO of Cergon, Doron Arazi to explain the move: “We are surprised and disappointed by your rejection of our April 2022 proposal to acquire Ceragon for $2.80 per share in cash, which represents a 34% premium to Ceragon shareholders based on the closing price on June 27, 2022.

“Last week, our Chairman and I traveled to Israel to meet with you in person. However, rather than engaging with us, you once again insisted that Aviat would have to agree to pay a break-up fee, which at the time translated to an outrageous ~$60 million on a $235 million transaction, or roughly 25%.  You also advised us that if Ceragon were to be presented with a superior bid, Ceragon should be permitted to terminate the agreement with Aviat without the payment of a termination fee. Consequently, we are left with no choice but to take our compelling proposal directly to your shareholders by making its terms public.”

Who will control Board?

Aviat seeks to replace three Ceragon directors who have close ties to the Chairman Zohar Zisapel: Ira Palti, Ceragon CEO from 2005 to 2021, Yael Langer and David Ripstein, and to add its own five nominees to get the board’s approval for the acquisition offer. “We believe that a combination of our two companies would create a leading wireless transport specialist with the scale and expertise to deliver superior performance to customers and shareholders.”

In Fiscal Year 2021, Aviat reported total revenue of $274.9 million, compared to revenue of $238.6 million in Fiscal Year 2020, and Net Income of $110 million. Ceragon’s 2021 Revenues totaled $290.8 million, up 10.6% from $262.9 million in 2020 and Net loss of $14.8 million,

Ceragon to lead 4G network deployment in Indonesia

Ceragon Networks Company has been selected to provide its wireless backhaul platform as the basis of LTE communication network deployment in Indonesia. The network is part of a wider government project to broaden internet access to rural areas in the country. As optic fiber infrastructure is lack in these areas, access to telecom services is based on wireless solutions and satellite communication.

Ceragon will be the prime vendor of this ambitious project, and will also be in charge for the network design and will lead the project management. Indonesia is a Muslim country, holding no formal relationships with Israel, though this is not the first Ceragon’s project in this country.  

Indonesia’s population is about 275 million people, and being composed of more the 16,000 islands – many rural areas cannot benefit from the advantages of the internet. According to Statista report, internet usage rate in Indonesia is 70%. In the Economist Intelligence Unit 2020 Report, Indonesia was ranked only 57th out of 100 in the Internet Accessibility Index. Back in 2014, the government launched an ambitious project aimed to provide broadband internet services to rural areas, but the implementation of this project is very slow.

Headquartered in Tel-Aviv, Ceragon develops wireless back-haul infrastructure solutions. Its flagship product is FibeAir IP-20 Assured Platform, that operates at every microwave and millimeter-wave band to match the requirements of diverse network scenarios. It is based on Ceragon’s multi-core radio technology to enable high-capacity and high spectral efficiency microwave and millimeter-wave operations.

 

Delay in Orders From India Hit Ceragon

Further delays of orders from India caused a reduction of approximately $20 million in the expected revenues Ceragon Networks. The company revealed that the orders, which the company had expected to be able to recognize during the second quarter of 2019, are now expected in the third quarter. As a result of the delay, approximately $20 million of revenue was pushed out from the second quarter.

“The remainder of Ceragon’s global business was slightly better than management’s expectations during the quarter,” the company said in a press release. Ceragon is currently estimates that its second quarter 2019 results be $71 million to $74 million. “We received one of the smaller orders from India in the last few days, and we expect to receive the other, larger orders in time to recognize the related revenue during Q3 and Q4,” said Ira Palti, president and CEO of Ceragon (photo above).

“These orders are part of an ongoing 4G expansion and densification effort in India that we have been supporting for the past 5 years. The reasons for the delay relate to customers’ internal processes, and the aggregate value of these orders has remained the same since we first began working on the details. Since we don’t expect an acceleration of the deployment schedule, the delay is expected to roll through the remaining quarters of 2019 and push a total of approximately $20 million of revenue related to India from 2019 into 2020.”

Ceragon provides wireless backhaul solutions for mobile networks. Following the announcement, the company’s stock in Nasdaq dropped 9.8%, and it is valued at Market Cap of $220.4 million.