ST Engineering is making a US$2.4 billion all-cash bid for Cubic Corporation, a New York-listed provider of intelligent transportation solutions and payment systems. It also provides military communication systems.

ST Engineering’s bid, at US$76 per share, trumps a US$70 per share offer earlier tabled on Feb 8 by Veritas Capital and Evergreen Coast Capital Corporation.

If successful, this will mark ST Engineering’s largest ever acquisition. Thus far, its largest acquisition was US$506 million paid for US engine nacelle maker MRAS just two years ago.

ST Engineering, in a statement, says it is “confident” that it has put forward a “superior proposal”.

Cubic’s Transportation Systems provides the payment systems for various public transport systems across North America and Europe, such as the London Oyster card.

“Cubic’s Transportation Systems business is an excellent fit with ST Engineering’s strategy to pursue growth in the Smart City domain, including mobility and transportation systems,” says ST Engineering.

If successful, it plans to maintain San Diego as not just Cubic’s corporate headquarters, but also its global HQ for its smart mobility business.

ST Engineering intends to invest in CTS and retain the ‘Cubic’ brand and further strengthen Cubic’s leading position in digital mobility payments and smart mobility applications by drawing on the best technology and talent from both organisations, the company adds.

On Feb 8, Cubic Corp reported earnings per share of US$0.38 for 1QFY2021 ended Dec 31 2020, a turn around from losses of US$0.12 in the year earlier quarter. Sales dropped by 3% y-o-y to US$318 million, with the drag from its military business.

Cubic Transportation Systems, the commercial arm, generated sales of US$197.1 million, up 5% y-o-y. Adjusted EBITDA for the same 1QFY2021 period was up 61% to US$35.8 million, thanks to a more favourable sales mix of higher margin products.

In contrast, the military segment, Cubic Mission and Performance Solutions, suffered a 13% drop in sales to US$121.7 million, due to fulfilment of lower orders. CMPS adjusted EBITDA increased to $2.7 million, compared to negative $1.8 million in the prior year period. 

As at Dec 31 2020, Cubic Corp’s order book was US$3,681.5 million, versus US$3,667 million as at Sept 30 2020. The bulk of the orders are for the Cubic Transport Systems segment.

To stave off potential sensitivities, ST Engineering has partnered with affiliates of US asset manager Blackstone to acquire Cubic’s Mission & Performance Solutions (CMPS) defence business immediately following the acquisition of Cubic by ST Engineering.

The proposed acquisition is subject to customary closing conditions, including certain anti-trust and foreign direct investment approvals by the Committee on Foreign Investment in the United States (CFIUS).

ST Engineering notes that it has a track record of successfully obtaining CFIUS approvals for all 11 of its past acquisitions in the US.

The acquisition is also subject to approval by ST Engineering’s own shareholders.

Morgan Stanley is acting as financial advisor to ST Engineering and Latham & Watkins LLP is acting as ST Engineering’s legal counsel.

NYSE-traded Cubic shares jumped to hit US$76 while ST Engineering closed March 22 at $3.85, down 0.26%.