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Elliott Eyes Cubic Corp.

Cubic Corp. has a newfound suitor, but the $1.5 billion corporation — based in Kearny Mesa — doesn’t seem to be rushing into any sort of marriage.

Elliott Management, the New York-based hedge fund led by Paul Singer, and a financial partner are working to buy the company. News that Elliott had taken a 15% stake broke on Sept. 21. Shares of Cubic (NYSE: CUB) closed up 34% at $59.56 on that day.

Cubic said Elliott had contacted it privately about a sale. The Cubic board said it wanted to act in the best interests of shareholders. The board met Sept. 20 and adopted a “poison pill” defense, known formally as a shareholder rights plan.

“The poison pill looks to be an effort to prevent Elliott from gaining control of the board and/or making a low ball bid for the company,” wrote Brian Gesuale, an analyst with Raymond James, in a note to investors.

Mix of Businesses

Cubic participates in an unconventional mix of businesses. It provides technology for military customers as well as government transportation authorities. Its mass-transit fare-collection systems are in place in New York, Boston, London, Los Angeles and the San Francisco Bay Area.

In a statement, Cubic said that its board has not initiated a process to sell the company. “The board believes that the company’s standalone prospects are excellent and that Cubic’s current strategic plan, including the recently announced NextCubic initiative, will create significant value for all Cubic shareholders,” it said.

“The interest by Elliott also highlights the much higher intrinsic value of CUB that has tantalized investors for years,” wrote Gesuale, the analyst. “From a valuation standpoint, we believe a takeout in the $85 to $90 range is reasonable.”

Rights Plan

“Cubic’s board is committed to creating long-term value and ensuring that our shareholders are able to realize the full potential of their investment in the company,” said David Melcher, lead independent director of Cubic, in a statement issued by the company on Sept. 21. “The adoption of the Rights Plan is intended to provide the board with time to make informed decisions and prevent any third party from obtaining control of Cubic in a manner and at a price that are not in the best interests of Cubic’s shareholders.”

Elliott issued a statement attributed to Partner Jesse Cohn and Portfolio Manager Marc Steinberg:

“Over the past several weeks, Elliott has engaged privately with Cubic regarding a potential acquisition of the company. In response to the company’s decision to make our dialogue public, we can confirm that we have acquired an approximately 15% economic interest in the company and have partnered with a leading private equity firm to pursue this opportunity. While we are disappointed with the board’s decision to impose a shareholder rights plan, we are pleased that the board has acknowledged its fiduciary duty to engage in good faith in pursuit of the value-maximizing outcome for Cubic and our fellow shareholders. We are fully prepared to acquire Cubic and look forward to immediate engagement with the company.”

In 2018, Elliott took a stake in San Diego-based Sempra Energy. It convinced that company to streamline its business model. Sempra went on to divest parts of the company not related to its North American businesses.

Evaluating Offers

Cubic’s shareholder rights plan expires on Sept. 19, 2021.

“The Rights Plan does not deter any offer or preclude the Cubic board from considering an offer that is fair and otherwise in the best interests of Cubic shareholders,” Cubic said in a statement. “The Rights Plan provides several recognized shareholder-friendly features, including an ability for shareholders to call a special meeting for purposes of exempting a ‘qualified offer.’ Consistent with its duties, the board has and will review any proposal to significantly increase shareholder value.”

J.P. Morgan Securities is acting as financial adviser to Cubic and Faegre Drinker Biddle & Reath LLP and Sidley Austin LLP are acting as the company’s legal counsel. n

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