HBE is a Nationally Recognized Leader in the Design, Engineering, Integration and Operation of Electronic Surveillance and Biometrics Technology Based Security Systems
Transaction Expected to be Immediately Accretive to Kratos EPS and All Financial Matrices
SAN DIEGO, Oct. 6, 2010 (GLOBE NEWSWIRE) -- Kratos Defense & Security Solutions, Inc. (Nasdaq:KTOS), a leading National Security Solutions provider, announced today it has entered into a definitive agreement to acquire all of the outstanding stock of Henry Bros. Electronics, Inc. (Nasdaq:HBE). HBE is a leading pure play provider of Homeland Security Solutions, Products, and System Integration Services, including the design, engineering and operation of Command and Control Systems for the protection of Strategic Assets and Critical Infrastructure in the United States. HBE also has particular expertise in the design, engineering, and deployment of specialized surveillance, thermal imaging, analytics, radar, and biometrics technology based security systems. Representative HBE programs and customers include Department of Defense Agencies, Nuclear Power Generation Facilities, State Government and Municipality Related Agencies, Major National Airports, Major Harbors, Railways, Tunnel Systems, Energy Centers, Power Plants, and Related Infrastructure.
The purchase price will be approximately $45 million in cash, or $7.00 per HBE share of common stock. Pursuant to the terms of the definitive agreement, Kratos will acquire all outstanding shares of HBE common stock in a merger transaction subject to approval by the majority of the stockholders of HBE. Holders of approximately 60% of the common stock of HBE, including Mr. James E. Henry, Mr. Richard D. Rockwell, and all other Directors of the company, have agreed to vote their shares in favor of the proposed merger. Additionally, Mr. Henry has committed to purchase Kratos common stock after closing of the transaction in open-market transactions at market prices utilizing a material portion of his transaction cash proceeds. To the extent Mr. Henry is employed by Kratos after the closing, Kratos has agreed to put in place a standard 10b5-1 plan for his benefit to accommodate these open market purchases.
Ben Goodwin, President of Kratos' Public Safety & Security Business, where HBE's business will be merged, said, "We are extremely pleased to be combining our business with one of the leading Homeland Security Solutions, Services, and Public Safety providers in the industry today. Henry Bros. has an incredible reputation in our marketplace, an outstanding leadership team and workforce, and an enviable long term customer base and relationships. When combined with Kratos' PSS Business, we believe that we will be the leading Homeland Security Solutions provider and system integrator in the industry." Mr. Goodwin concluded, "I am looking forward to Jim Henry joining the Kratos team in a long-term relationship and together pursuing new, large, and critical security program opportunities that independently we could not have previously pursued."
Jim Henry, President and CEO of Henry Bros., said, "This is truly a defining day for Henry Bros' entire organization and workforce. Henry Bros. has been a leader in security system engineering and integration for over 60 years, and we are joining an organization in Kratos that shares our company's security visions, goals and objectives, and which will enable us to continue to build our business and execute our strategic plan. Importantly, when combined with Kratos and its significant resources, we see significant opportunity to bid on and win large program opportunities, including those national in scope which we could not have pursued independently, while also providing significant opportunity to the entire Henry Bros. employee base and workforce."
Eric DeMarco, Kratos' President and CEO, said, "Henry Bros. is clearly one of the premier Homeland and National Security Solution Providers and Command and Control Center Design Engineering and Operators in the industry today. We see the opportunity for significant cross selling between the two businesses, including for Henry Bros.' proprietary first responder communications products and solutions. Additionally, we see the opportunity to cross sell into HBE's large and established customer base Kratos' NeuralStar and DopplerVue situational awareness, security network management, protection and cybersecurity software products. Also importantly, the transaction is expected to be immediately financially accretive to Kratos' Earnings Per Share, Cash Flow, Cash Flow Per Share and other financial matrices."
Henry Bros. recently increased its revenue guidance for 2010 to approximately $65 million, reported a record backlog of approximately $53 million, and reported second quarter new contract bookings of approximately $35 million. Henry Bros. has a significant qualified bid and proposal pipeline and is currently performing on large military and national security related programs with periods of performance through 2011. The combination of Henry Bros. with Kratos will provide the opportunity for significant cost savings and synergies, including specifically in the areas of duplicative public company related costs, investor relations costs, insurance, accounting, consulting and tax fees, and the streamlining and rationalization of duplicative facilities, overhead and general and administrative elements and other areas. The transaction is expected to immediately increase Kratos' free cash flow, cash flow from operations, free cash flow per share of Kratos' common stock, and be immediately accretive to Kratos' EPS, excluding transaction related costs. Kratos has approximately $210 million in Tax Net Operating Loss Carryforwards which can be utilized to shield substantially all of the combined companies' pre-tax income from Federal and certain state income taxes. The estimated Net Present Value of these NOL's, which expire through 2027, is approximately $50 million to Kratos. The transaction is subject to customary closing conditions, including approval by the stockholders of HBE. The transaction is expected to close by the end of 2010, with an expected transaction purchase price multiple of approximately 5x pro forma EBITDA.
B. Riley & Co., LLC acted as exclusive financial advisor to Kratos Defense & Security Solutions, Inc.
About Kratos Defense & Security Solutions
Kratos Defense & Security Solutions, Inc. (Nasdaq:KTOS) provides mission critical products, services and solutions for United States National Security. Principal products, services and solution offerings relate to and support C5ISR, weapon systems sustainment, military weapon range operations and technical services, network engineering services, information assurance and cybersecurity solutions, security and surveillance systems, and critical infrastructure security system design and integration. The Company is headquartered in San Diego, California, with resources located throughout the U.S. and at key strategic military locations. News and information are available at www.KratosDefense.com.
The Kratos Defense & Security Solutions, Inc. logo is available at http://www.globenewswire.com/newsroom/prs/?pkgid=3519
Additional Information
In connection with the merger, HBE will be filing a proxy statement and other relevant documents concerning the transaction with the Securities and Exchange Commission (SEC). STOCKHOLDERS OF HBE ARE URGED TO READ THE PROXY STATEMENT AND ANY OTHER RELEVANT DOCUMENTS FILED WITH THE SEC WHEN THEY BECOME AVAILABLE BECAUSE THEY WILL CONTAIN IMPORTANT INFORMATION. Investors and security holders can obtain free copies of the proxy statement and other documents when they become available by contacting Investor Relations, Kratos Defense & Security Solutions, 4820 Eastgate Mall, San Diego, CA 92121. In addition, documents filed with the SEC by HBE will be available free of charge at the SEC's web site at http://www.sec.gov.
Kratos and its executive officers and directors may be deemed to be participants in the solicitation of proxies from the stockholders of HBE in favor of the acquisition. Information about the executive officers and directors of Kratos and their ownership of Kratos common stock is set forth in the proxy statement for Kratos's 2010 Annual Meeting of Stockholders, which was filed with the SEC on April 1, 2010.
Notice Regarding Forward-Looking Statements
This news release and filing contains certain forward-looking statements that involve risks and uncertainties, including, without limitation, expressed or implied statements concerning the Company's expectations regarding future financial performance, bid and proposal pipeline, performance of key contracts, market developments, and timing of integration activities and anticipated benefits to be realized from recent acquisitions. Such statements are only predictions, and the Company's actual results may differ materially. Factors that may cause the Company's results to differ include, but are not limited to: risks that the integration of recently acquired businesses will prove more costly, take more time, or be more distracting than currently anticipated; risks of adverse regulatory action or litigation; risks associated with debt leverage; risks that our cost cutting initiatives will not provide the anticipated benefits; risks that changes, cutbacks or delays in spending by the U.S. Department of Defense may occur, which could cause delays or cancellations of key government contracts; risks that changes may occur in Federal government (or other applicable) procurement laws, regulations, policies and budgets; risks relating to contract performance; changes in the competitive environment (including as a result of bid protests); failure to successfully consummate acquisitions or integrate acquired operations and competition in the marketplace, which could reduce revenues and profit margins; risks that potential future goodwill impairments will adversely affect our operating results; and risks that anticipated tax benefits will not be realized in accordance with our expectations. The Company undertakes no obligation to update any forward-looking statements. These and other risk factors are more fully discussed in the Company's Annual Report on Form 10-K for the period ended December 27, 2009, the Company's Quarterly Report on Form 10-Q for the period ended June 27, 2010, and in other filings made with the Securities and Exchange Commission.
CONTACT: Kratos Defense & Security Solutions, Inc. Press Contact: Yolanda White 858-812-7302 Investor Information: 877-934-4687 investor@kratosdefense.com