Ross Wilkers

M&A

Veritas teaming with activist hedge fund on Cubic acquisition

A private equity firm and activist investor seeking to acquire the publicly-traded defense and transportation company Cubic Corp. through a joint bid have apparently won over the board of directors after months of talks.

San Diego-based Cubic has agreed to be acquired for approximately $2.2 billion in cash by Veritas Capital and Elliott Management, the hedge fund founded and led by billionaire investor Paul Singer that holds 15 percent of Cubic’s stock.

Elliott is undertaking the deal through its technology-focused private equity arm Evergreen Coast Capital. So technically, this is a teaming of two private equity buyers in an acquisition of a government contractor, albeit with very differing identities.

All parties anticipate the transaction's closure in the second quarter and the deal includes the assumption of roughly $600 million in Cubic debt, bringing the enterprise valuation to $2.8 billion.

The cash portion breaks out to $70.00 per share, or a 58-percent premium to the closing price on Sept. 18, 2020. The next morning, Cubic revealed that Elliott was interested in acquiring the company in partnership with a private equity firm, unnamed at the time.

Cubic subsequently adopted a new shareholder rights plan also known as a “poison pill” and said its board had not initiated a sale process at the time, but added the directors would consider any fair offer. They have a fiduciary duty to do so given Cubic's status as a public company.

Three days after that, Reuters reported that Veritas was the private equity firm working with Elliott.

Veritas and Elliott are known to each other given they teamed up to acquire Athenahealth for $5.7 billion and take that company private.

Of course, Veritas is known to the government technology market and other government-influenced sectors as a serial private equity investor. They are taking Perspecta private in a $7.1 billion cash acquisition and merging it into Peraton, which just combined with the former Northrop Grumman IT services business also acquired with Veritas' backing.

Elliott is the unknown with respect to government contracting. Though this deal helps the fund further branch out into acquisitions on top of its approach of buying large amounts of stock in companies it sees as underperforming, then pushing for changes to increase value and performance.

Cubic has been in the midst of change in recent years, most recently in the late summer of last year through a consolidation from three segments into two -- defense and transportation.

What further changes are in store for Cubic are certainly TBD at this point. But I expect them still.

Cubic's stock was unsurprisingly up roughly 9.5 percent in the 12 p.m. Eastern time hour and hit a new 52-week high of $69.95 in morning trade.

J.P. Morgan Securities is acting as lead financial adviser to the Cubic and Sidley Austin LLP and Faegre Drinker Biddle & Reath LLP are the legal counsel. Raymond James & Associates gave Cubic’s board an opinion regarding the fairness, from a financial point of view, of what is being offered to Cubic shareholders.

Covington is assisting Veritas on government contracts and other regulatory aspects of the transaction. Skadden, Arps, Slate, Meagher & Flom LLP is acting as legal counsel to Veritas. Gibson, Dunn & Crutcher LLP is acting as legal counsel to Elliott.

About the Author

Ross Wilkers is a senior staff writer for Washington Technology. He can be reached at rwilkers@washingtontechnology.com. Follow him on Twitter: @rosswilkers. Also connect with him on LinkedIn.

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