Mercury Systems (MRCY) Implements Poison-Pill Tactic for 1-Year

Mercury Systems (NASDAQ:MRCY) Inc. MRCY recently announced that its board of directors has adopted a limited-duration shareholder rights plan (the “Rights Plan”) also known as “Poison Pill” to prevent a party from taking control over the company.

With the Rights Plan, which has one-year duration, Mercury’s board intends to ensure the protection of the long-term interests of the company’s shareholders. The Plan aims to realize the full potential value of the shareholders’ investment in the company, while reducing the chances of any person or group gaining control over it without paying full and fair value.

Per the Rights Plan, Mercury will be distributing one right (“Right”) for each common share outstanding as of Jan 10, 2022. These Rights will become exercisable when a person or group acquires beneficial ownership of the company’s common shares in a transaction not approved by its board. For passive investors, the ownership threshold is 10%, while it is 7.5% for others.

When the Rights Plan becomes exercised, each Right holder will have the right to purchase Mercury’s preferred shares having a value of twice the market value of the company’s common shares, upon payment of the exercise price.

Rationale Behind Mercury’s Anti-Takeover Tactic

Mercury’s latest move seems to have been triggered following the last week’s disclosure of activist investor, JANA Partners acquiring a 6.6% stake in the company. In a filing with the U.S. Securities And Exchange Commission ("SEC") under Schedule 13D, the company revealed that JANA Partners bought roughly 3.73 million of its common stocks for approximately $181.1 million, with an option to purchase additional 173,300 shares.

JANA Partners intends to have discussions with Mercury’s management to consider ways to maximize shareholder value. The discussion would be aimed at “evaluating strategic alternatives, including a sale of the Issuer, operations, capital allocation, corporate governance, board composition and compensation practices," per the filing.

Despite consecutive quarters of strong financial performance, the stock depreciated 37.2% so far this year against the S&P 500’s gain of 28.7%. That’s why management believes that the company is highly undervalued and possibly could be a target for a hostile takeover.

Therefore, the recently implemented Rights Plan will help the company prevent an unwelcome party to acquire the company or take control over management.

Zacks Rank & Stocks to Consider

Mercury currently carries a Zacks Rank #3 (Hold).

Some better-ranked stocks from the broader computer and technology sector include the largest global Customer Relationship Management vendor Salesforce (NYSE:CRM) CRM, flaunting a Zacks Rank #1 (Strong Buy), Advanced Micro Devices (NASDAQ:AMD) AMD and EPAM Systems EPAM, both carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

The Zacks Consensus Estimate for Salesforce’s fourth-quarter fiscal 2022 earnings has been revised downward by 7.6% to 73 cents per share over the past 30 days. For fiscal 2022, earnings estimates have moved upward by 28 cents to $4.68 per share in the last 30 days.

Salesforce’s earnings beat the Zacks Consensus Estimate in the preceding four quarters, the average surprise being 44.2%. CRM stock has appreciated 14.8% YTD.

The Zacks Consensus Estimate for Advanced Micro Devices’ fourth-quarter 2021 earnings has been revised upward by 7 cents to 75 cents per share over the past 90 days. For 2021, earnings estimates have moved north by 0.38% to $2.65 per share in the past 30 days.

Advanced Micro Devices’ earnings beat the Zacks Consensus Estimate in each of the preceding four quarters, the average surprise being 14%. Shares of AMD have rallied 67% in the YTD period.

The consensus mark for EPAM’s fourth-quarter 2021 earnings has been revised upward to $2.50 per share from $2.36 over the past 60 days. For fiscal 2021, earnings estimates have been revised upward by 38 cents to $8.78 per share in the last 60 days.

EPAM’s earnings beat the Zacks Consensus Estimate in each of the preceding four quarters, the average surprise being 7.2%. Shares of EPAM have soared 90.4% YTD.

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