General
December 25, 2021
3 minutes read

Hedge Fund Jana Partners Pushes For Sale Of Defense Supplier Mercury Systems

Jana Partners, an activist hedge fund chaired by finance honcho Barry Rosenstein, has picked its latest tussle with Mercury Systems…

Jana Partners, an activist hedge fund chaired by finance honcho Barry Rosenstein, has picked its latest tussle with Mercury Systems (NASDAQ: MRCY), a supplier of electronics to the aerospace and defense industries that’s one of the last remaining independent, publicly-traded suppliers of its kind.

On Thursday, Jana Partners disclosed a 6.6% ownership stake in Mercury Systems. That stake is worth roughly $200mn at Mercury’s current share price. The defense supplier’s stock has fallen over 40% this year, an ideal situation for an activist investor to seek the backing of disgruntled shareholders and push for major change. Jana said it’ll hold talks with Mercury Systems’ board to consider options for the business, including a potential sale.

With a depressed stock, Mercury Systems seems like an ideal acquisition target for either private equity firms or a defense company with big bucks looking to expand its turf. There’s no shortage of moneyed defense firms or private equity firms in the US that can acquire Mercury, and Jana likely prefers a sale among the options it said it’ll push the company’s board to consider. Jana also said it’d hold talks regarding Mercury’s board composition and compensation practices along with a potential sale.

Mercury makes electronics components used in various aerospace and defense platforms, e.g., the rugged ethernet routing devices in Boeing’s AH-64E Apache attack helicopter. While it has a solid, stable business, growth prospects are lackluster, discouraging investors from the company. Also, this year, issues around the resolution of the federal defense budget and supply chain issues are affecting Mercury’s business, CEO Mark Aslett said in a November earnings call.

In the quarter ended October 1, 2021, Mercury reported $225mn in revenue, up 9% year-over-year. Meanwhile, it reverted from $16mn in profits in the same quarter last year to a $7mn net loss this year. In October, the defense supplier had a sales backlog of $884mn, a $60mn decrease from a year ago.

As an activist fund, Jana has a history of pushing for change, including sales, at companies it invests. It has successfully pushed for sales on several occasions, including a scuffle this year with CyrusOne (NASDAQ: CONE), a data center real estate investment trust that agreed to be acquired for $15bn last month.