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Comtech issues stockholder letter, resists activist pressure

Comtech develops high-tech communication systems.

Comtech develops high-tech communication systems. Photo Credit: Handout

Under pressure from an activist hedge fund investor, Comtech Telecommunications Corp. issued an unusual letter Thursday telling its shareholders, in effect, that it's doing a good job and it is guided by a full complement of independent board members.

The Melville-based satellite communications maker didn't directly say it was responding to pressure from MMI Investments, owner of 3.3 percent of company shares. But the substance of the letter was applicable to MMI's demands to have two of its nominees added to the Comtech board.

MMI's principals have said publicly that they are concerned about Comtech's decision to achieve growth by buying other companies now that it has lost a mainstay U.S. Army contract for blue-force tracking systems. The Army in July awarded that contract to a competitor, ViaSat.

Nearly 300,000 shares of Comtech (CMTL) had changed hands by midafternoon Thursday.  The price closed at $31.62, down $0.78, or 2.4 percent.

With about 1,500 employees and a $700 million market capitalization, Comtech has diversified by seeking acquisitions in recent months.

"We will address MMI's director nominees in due course; but for now, we wanted to share with all of our stockholders our perspective on Comtech's historical performance and future prospects," the company letter said.

Comtech said that during the past decade its stock price has increased 408.4 percent compared to far lower returns on overall stock indexes.

"Comtech's performance over this period represents an average annual return of 17 percent. We believe this 10-year time frame is the most accurate measure of Comtech's long-term performance because it demonstrates the company's significant growth irrespective of the increases and declines in revenue" from military contracts, it said.

The company reported that for its most recent fiscal year, ending July 31, it had a sharp drop in net sales to $612.3 million compared to $778.2 million in the prior-year quarter. It said the drop was due to the company's loss of a contract for a U.S. Defense Department blue-force tracking system. Comtech's net income for the year was $67.8 million, up from $60.6 million the previous year.

Blue force tracking is a GPs-driven battlefield program, using satellite signals and in-vehicle monitors that allow monitors to see friendly forces on screen in blue and the enemy in red.

Photo: A Comtech radar system.

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