Diebold woos Henry Bros., but deal with Kratos expected to close Dec. 9.

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Thursday, November 18, 2010

FAIR LAWN, N.J.—The price that Kratos Defense and Security Solutions will pay for Henry Bros. Electronics went up this week, from $7 per share to $8.20 per share, as the result of a rival offer from Diebold.

Henry Bros. and Kratos on Oct. 6 announced a $45 million merger agreement. [http://www.securitysystemsnews.com/article/kratos-agrees-buy-henry-broth... At that time, HBE entered a 40-day “go shop” period where HBE was able to entertain offers from other suitors. That “go shop” period ended last Sunday night at midnight, Nov. 14. While the terms have changed, it appears that the Kratos/Henry Bros. deal is likely to close as scheduled on Dec. 9, 2010.

 “It’s not totally impossible, but it’s highly unlikely that someone new will enter the process now,” Jim Henry, Henry Bros. Electronics CEO, told Security Systems News on Nov. 16. At this point Kratos “is in the top position” he said, noting that HBE and Kratos “have a signed agreement and a firm commitment and a concluding time frame.”

According to a Nov. 15 Kratos statement, HBE notified Kratos that it had “received an acquisition proposal from Diebold, Inc., a publicly traded company with significant presence in the New York/New Jersey market. Pursuant to its proposal, Diebold offered to acquire 100 percent of the outstanding capital stock of HBE for $8.00 per share in cash. The Diebold proposal did not include a financing contingency.”

The Kratos statement says it has filed a definitive proxy statement with the U.S. Securities and Exchange Commission.

The statement also said that the HBE shareholder meeting to vote on the proposed transaction is scheduled for December 9, and that’s the day “we expect to close the transaction. The executed amendment will not change the December 9, 2010 HBE shareholder meeting date, or the expected transaction closing date.”

A Nov. 15 HBE statement gives some details about the 40-day go-shop period. It says HBE’s financial advisor, Imperial Capital, contacted 117 potential transaction partners “at the request of and on behalf of HBE.” Of those, 11 parties went further in the process, entering into confidentiality agreements, and were allowed to review non-public information about HBE.

The statement notes that HBE is “permitted to continue to have negotiations and discussions with [Diebold] with respect to its acquisition proposal ... As the third party has not completed due diligence to date, its proposal is subject to, among other things, completion of due diligence review and negotiating the terms of a definitive agreement.”

It also notes that “HBE's Board of Directors has not withdrawn, changed or otherwise modified its unanimous recommendation in favor of the proposed merger with Kratos.”

Asked what he thought of being sought by Kratos and Diebold, Henry said: “There’s a feeling of satisfaction and respect that two world-class companies are interested in us being part of their organization.”