Technology Stocks

Sparton Corporation (NYSE:SPA) Surging As Cerberus Takeover Looms

Sparton Corporation (NYSE:SPA) is skyrocketing up the charts on the board of directors accepting a takeover bid from Cerberus. The private equity firm has agreed to pay $18.50 a share in cash, which represents a 41% premium over the stock’s closing price as of December 11, 2018.

Cerberus- Sparton Takeover

The acquisition bid could not have come at a better time, given that Sparton Corp has taken a significant hit in the market.  Prior to the announcement of the deal, Sparton Corp had shed more than 40% in market value on plunging to the $13 a share handle.  The board approving the takeover appears to have reinvigorated investor’s interest in the stock.


The board is urging shareholders to approve the deal at the next shareholders meeting.  Even though the transaction is, still subject to shareholder approval, it is expected to close in the first calendar quarter of next year.

“This transaction is the result of the significant time and effort the Company has invested in its previously announced process to explore strategic alternatives, including a potential acquisition of Sparton. We are pleased to have successfully concluded our process with a transaction that delivers significant value to the shareholders of Sparton,” said Joseph J. Hartnett, Interim President and Chief Executive Officer of Sparton.

According to the Chief Executive Officer, the merger should deliver immediate value to shareholders. The transaction should also provide Sparton a long-term partner focused on building upon a strong platform. Cerberus has made a name for itself as a leading investor in global technology and manufacturing companies.

The $18.50 a share bid has however not gone well with some investors. A wave of class action lawsuits is the latest headwind that Sparton Corp will have to contend with. A number of law firms have already filed class action lawsuits on concerns whether Sparton and certain of its officers violated federal securities laws on accepting the $18.50 takeover bid.

Failed Ultra Electronics Takeover

Sparton comes into the deal having seen an initial takeover bid by British Defense Company Ultra Electronics fall through amidst antitrust concerns. The two were forced to call off the proposed merger after it emerged the U.S Justice Department was planning to go to court to block the merger.  The U.S Navy had raised concerns that a merger between Ultra Electronics and Sparton Corp would have resulted in a consolidated sonobuoy supplier.

Sparton has made a name for itself as a developer of electromechanical devices used by the military as well as aerospace customers. The company is being acquired having delivered solid financial results for the first quarter of fiscal 2019. Net sales in the quarter surged to $89.5 million from $82.8 million reported a year earlier.

Gross profit margin in the quarter expanded to 19.7% from 19.2% reported a year ago. The company had about $43 million under its $120 million credit facility as of the end of September 30, 2018.

According to the Chief Executive Officer, Q1 financial results underscored a strong operating performance supported by organic growth in the MDS segment as well as a healthy backlog.

Bottom Line

Shares of Sparton are rallying in anticipation of the Cerberus deal closing in the first quarter of next year. If history is anything to go by then maintaining a watchful is necessary. The company has been in the same position in the past, something that did not end well resulting in a sell-off of the stock.

Regulators blocking the takeover on antitrust concerns could go a long way in fuelling a sell off the stock, back to this year’s lows.

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