Communications Systems, Inc. (NASDAQ: JCS), an IoT intelligent edge products and services company, today announced that it has entered into a definitive securities purchase agreement with Lantronix, Inc. (NASDAQ: LTRX), to sell CSI’s Transition Networks and Net2Edge businesses to Lantronix for a base price of $25 million to be paid at closing, subject to a working capital adjustment following the closing, plus up to an additional $7 million in earnout payments based on revenue milestones for the Transition Networks and Net2Edge businesses in the two 180-day periods after closing of the sale.
The sale of these businesses requires CSI shareholder approval and is also subject to customary closing conditions. Assuming CSI’s shareholders approve the transaction, it is expected to close in June 2021. The Transition Networks and Net2Edge businesses represent substantially all of the assets of the company’s Electronics & Software segment, which had 2020 revenues of $34.5 million. Concurrently with the closing of the purchase agreement, CSI and Lantronix will enter into a transition services agreement under which CSI will perform administrative and IT services and license office, warehouse and production space at its Minnetonka, Minnesota facility for the transferred businesses for up to twelve months.
Lantronix is a global provider of Software as a Service (SaaS), connectivity services, engineering services, and intelligent hardware solutions for the internet of things (IoT) and Remote Environment Management (REM).
Roger Lacey, executive chairman of CSI, commented, “This transaction is integrally related to our previously announced merger with Pineapple Energy, LLC, a growing U.S. operator and consolidator of residential solar, battery storage, and grid services solutions. When we announced the merger with Pineapple, we also announced we planned to substantially divest all of our existing businesses, real estate holdings, and cash, cash equivalents, and investments and distribute available sale proceeds from any pre-merger divestitures, together with other available cash in the form of a cash dividend to existing CSI shareholders prior to the effective date of the Pineapple merger."
Lacey added, “While we do not yet know the exact amount and timing of the cash dividends, related to this transaction, we intend to distribute $3.50 per share or approximately $35.0 million (which would include the $1.00 per share dividend mentioned in the Company’s March 2, 2021 press release), consisting of proceeds from the sale of the Transition Networks and Net2Edge businesses and other available cash after closing the sale of these businesses, but prior to the closing of the CSI-Pineapple merger. We will provide more information about the payment of dividends in the future.”
Anita Kumar, CSI’s CEO commented, “We are confident that we have found a great home for the employees and customers of Transition Networks and Net2Edge at Lantronix. There is a growing need for actionable insight with more intelligence, computing, analytics and ubiquitous connectivity at the edge of networks. Transition Networks’ portfolio of intelligent edge power and connectivity products that deliver key solutions in smart cities, smart buildings and intelligent transportation systems will accelerate Lantronix’ ability to deliver intelligent hardware and software solutions for the internet of things."
According to a press statement, in addition to its Transition Networks and Net2Edge businesses, CSI assets remaining to be sold include: the company's Services & Support operating segment (JDL Technologies and Ecessa Corporation), which had revenues of $8.8 million in 2020; the company’s headquarters building in Minnetonka, Minnesota, currently listed for $10.0 million; and real estate in Hector, Minnesota, currently listed for $1.2 million.
In addition to any cash dividends paid prior to the CSI-Pineapple merger, as previously disclosed, CSI shareholders immediately prior to this merger (i) will receive a Contingent Value Right that will entitle them to 90% of the net proceeds of any legacy CSI assets that are sold within 18 months after the CSI-Pineapple merger and (ii) will have a continuing interest as shareholders in the combined CSI- Pineapple post-merger entity.
Consistent with CSI’s previously disclosed plans, on April 11, 2021, CSI entered into a non-binding Letter of Intent for debt and equity financing. The financing is subject to the negotiation and execution of a definitive securities purchase agreement and continuing investor due diligence and would be subject to CSI shareholder approval. CSI expects the financing would close concurrently with closing of consummation of the CSI-Pineapple merger.
Assuming the successful conclusion of financing, CSI-Pineapple would use the financing proceeds to refinance the Pineapple existing debt and to provide ongoing working capital, funds for future capital expenditures, and capital for general corporate purposes.
CSI's Kumar concluded, "With Lantronix’ commitment to continued investment in this space through its purchase of the Transition Networks and Net2Edge businesses and the broader scale that will now become available to Lantronix, we expect this business to grow. Becoming part of Lantronix will not only offer the ability to continue our long tradition of quality products and exceptional customer support, but at the same time offer our customers a broader product offering with Lantronix’ IoT gateways and out-of-band management solutions. Lantronix will continue to keep a presence in Minnesota where Transition Networks is currently headquartered. Our team will be working closely with Lantronix to support our customers during the transition process without disruption.”
For more information, visit www.lantronix.com.