Cohen's SAC Thinks Buyout Price of EDO Corp (EDO) May Be Too Low

In a 13D filing on EDO Corporation (NYSE: EDO) after the close, Steve Cohen's SAC Capital, a 6.1% shareholder, said, "we believe that the merger consideration might be inadequate."

In September, EDO agreed to be acquired by ITT Corporation (NYSE: ITT) for $56 per share. Shares of EDO are currently at $57.35.

SAC Capital said they are continuing to review EDO's Preliminary Proxy Statement and are considering the proposed merger transaction in light of the information contained.

SAC may be referring to a third party called "Party A" in the preliminary proxy. The proxy showed that Party A was very aggressive and made numerous bids to acquire EDO before the ITT deal was announced.

A Copy of the Background of the Merger section of the Proxy:

Over the course of the past two years, James M. Smith, the Company’s Chairman, Chief Executive Officer and President, has received from third parties unsolicited informal expressions of interest in exploring the possibility of a strategic transaction involving the Company. Except as described in this proxy statement, the Board of Directors has not entertained any of these expressions of interests, and none of them has turned into a formal acquisition proposal.

In October 2006, Mr. Smith received an unsolicited oral expression of interest from a third party (referred to in this proxy statement as “Party A”) with respect to a potential business combination with the Company. At the meeting, Mr. Smith advised representatives of Party A that the Board of Directors would need a persuasive business case for pursuing any transaction involving the Company, including the strategic benefits of combining the capabilities of the Company and the potential acquiror in the marketplace, the ultimate impact upon the Company’s employees and their interests, and the potential effects of the transaction on our government customer community. Mr. Smith also explained to representatives of Party A his belief that the Company’s financial results for the 2006 fiscal year were not indicative of the Company’s prospects. He further explained to representatives of Party A that the Company had made significant acquisitions in late 2006, the full impact of which he believed had not been reflected in the share price to date, and that the Company was competing for several major government contracts expected to be awarded in 2007.

In November 2006, representatives of Party A made a presentation to Mr. Smith on the mutual business benefits to the Company and Party A of a potential business combination between them. Mr. Smith again advised representatives of Party A that any acquisition proposal based on the Company’s financial performance for the 2006 fiscal year would likely not result in a purchase price that would be acceptable to the Board of Directors.

In January 2007, Party A submitted a written indication that its proposal would be based on a multiple of 10 to 11 times the Company’s estimated 2007 EBITDA. Party A also orally indicated to the Company that it expected to maintain the Company’s corporate office in place and that most of the Company’s senior officers and some of its directors would continue to serve following the merger.

On January 9, 2007, at a regular meeting, the Board of Directors reviewed the indication of interest submitted by Party A and authorized senior management to provide Party A with access to non-public information concerning the Company and the opportunity to conduct due diligence.

On January 16, 2007, the Company and Party A entered into a confidentiality and non-disclosure agreement.

On January 19, 2007, members of senior management of the Company met with and provided to Party A certain internal sales and earnings projections for the 2007-2011 period.

On January 31, 2007, Mr. Smith met with Mr. Steve Loranger, Chairman, President and CEO of ITT, at Mr. Loranger’s request. At the meeting, Mr. Loranger expressed on behalf of ITT an interest in acquiring the Company at a per share price in the range of the high-$20s. In response, Mr. Smith advised Mr. Loranger that any price level based on the Company’s 2006 results would not be acceptable to the Company, that the Company had made significant acquisitions in late 2006, the full impact of which he believed had not been reflected in the share price to date, and that the Company was competing for several major government contracts expected to be awarded in 2007. Mr. Smith also advised Mr. Loranger that the Board of Directors would need a persuasive business case for pursuing any transaction involving the Company, including the strategic benefits of combining the capabilities of the Company and the potential acquiror in the marketplace, the ultimate impact upon the Company’s employees and their interests, and the potential effects of the transaction on our government customer community. No further discussions between our representatives and representatives of ITT took place at that time.

On February 12, 2007, Party A submitted a formal proposal to acquire the Company at $38.00 per share, subject to due diligence.

On February 15, 2007, Mr. Smith advised representatives of Party A that he would present Party A’s proposal to the Board of Directors, but that he believed that the Board of Directors would find the offer insufficient.

On February 19-20, 2007, at a regular meeting, the Board of Directors reviewed Party A’s proposal. After due consideration, the Board of Directors concluded that the proposed price of $38.00 per share was inadequate and authorized Mr. Smith to so inform Party A. Mr. Smith orally informed Party A of the Board of Directors’ decision shortly thereafter.

On February 27, 2007, representatives of Party A met with members of senior management of the Company to further discuss a proposed transaction.

On March 6, 2007, Mr. Smith and Mr. Loranger each attended an industry conference, where Mr. Loranger expressed to Mr. Smith a continued interest in the Company.

On March 19, 2007, representatives of Party A orally advised Mr. Smith that Party A would reconsider its offer and that Party A believed that it could increase the proposed price.

On April 6, 2007 and April 13, 2007, respectively, the DOD publicly announced that two major government contracts had been awarded to the Company’s subsidiaries.

On April 24, 2007, representatives of Party A met with Mr. Smith and indicated that Party A was willing to increase its offer to $42.00 per share.

On May 1, 2007, at a regular meeting, the Board of Directors discussed, among other things, the potential transaction with Party A and retention of a financial advisor for the Company in connection with such transaction. Representatives of our legal advisors, Debevoise & Plimpton LLP (referred to in this proxy statement as “Debevoise”), and Citi were invited to attend the meeting. At the meeting, Citi discussed with the Board of Directors its industry experience and its experience with merger and acquisition transactions. Representatives of Debevoise reviewed with the Board of Directors its fiduciary duties under New York law. The Board of Directors authorized Mr. Smith to enter into an agreement to negotiate exclusively with Party A with respect to a business combination based on Party A’s increased offer. The Company also subsequently engaged Citi as its financial advisor in connection with a possible transaction involving the Company.

On May 2, 2007, the Company and Party A entered into an agreement to negotiate exclusively with each other until the earlier of June 11, 2007 or the execution of a definitive agreement with respect to a business combination or other similar transaction. The parties also agreed not to solicit, and not to enter into any agreements with respect to, any competing business combination proposals during the exclusivity period.

During the period from May 2, 2007 to June 10, 2007, Party A conducted its due diligence investigation of the Company. During the same period, the Company and Party A, together with their legal advisors, fully negotiated the terms of a merger agreement pursuant to which Party A would acquire all of the issued and outstanding common shares of the Company at the price of $42.00 per share.

On May 30, 2007, the Board of Directors held a special meeting to discuss the proposed transaction with Party A. Our legal and financial advisors also attended the meeting. At the meeting, representatives of Debevoise reviewed with the Board of Directors its fiduciary duties under New York law and the proposed terms of the merger agreement with Party A. Our financial advisor discussed with the Board of Directors financial aspects of the proposed merger with Party A.

In early June 2007, the Company received indications from the DOD that it was considering exercising options under one of the government contracts previously awarded to one of the Company’s subsidiaries, which would substantially increase the number of units to be manufactured and supported by the Company under the contract.

On June 10, 2007, the Board of Directors held a special meeting to review the proposed transaction with Party A. Our legal and financial advisors also attended the meeting. At the meeting, representatives of Debevoise again reviewed with the Board of Directors its fiduciary duties under New York law and answered questions relating to certain proposed terms of the merger agreement with Party A. Our financial advisor again discussed with the Board of Directors financial aspects of the proposed merger with Party A.

On June 11, 2007, the Board of Directors met again to further review the proposed transaction with Party A. Our legal advisors also attended the meeting. After reviewing the various considerations relating to the proposed transaction, including the Company’s improved prospects in light of the anticipated substantial increase in the Company’s revenue growth rate attributable to increased production quantities under one of the recently awarded government contracts, the Board of Directors concluded that the proposed price of $42.00 per share did not reflect the Company’s full value. Accordingly, the Board of Directors determined to reject the proposed merger with Party A. Mr. Smith reported this decision of the Board of Directors to Party A on the same day.

In late June 2007, representatives of Party A met with Mr. Smith and expressed continued interest in a transaction with the Company.

On July 10, 2007, representatives of Party A orally indicated to Mr. Smith that Party A was willing to increase its offer to $45.00 per share as its final price. Party A made it clear that it would not be willing to increase its offer above that price. Party A also indicated that any such transaction would have to be announced no later than the first week of September 2007.

In mid-July 2007, the DOD publicly announced that one of the government contracts previously awarded to a subsidiary of the Company had been modified by the DOD to exercise options that would substantially increase the number of units to be manufactured and supported by the Company under the contract, and that another major contract with the Company had been modified to increase its funding cap limitation, which also substantially increased the number of units to be manufactured and supported by the Company under that contract.

On July 18, 2007, Mr. Smith again met with Mr. Loranger, Chairman, President and CEO of ITT, at Mr. Loranger’s request. At the meeting, Mr. Loranger indicated that ITT would be interested in acquiring the Company at a price in the range of low-$40’s per share. Mr. Smith advised Mr. Loranger that the offer should be confirmed in writing.

On July 20, 2007, the Board of Directors held a special meeting, at which Mr. Smith informed the Board of Directors of his conversation with representatives of Party A on July 10 and his meeting with Mr. Loranger on July 18.

On July 27, 2007, the Company received a letter from ITT, containing a proposal to acquire the Company at a price in the range from $42.00 to $44.00 per share, subject to due diligence.

On July 30, 2007, at a special meeting, the Board of Directors reviewed Party A’s revised proposal. Based on the Board of Directors’ belief that the $45.00 per share price proposed by Party A did not reflect the full value of the Company, the fact that Party A had made it clear that it was not willing to increase its offer above that price, and the fact that, due to certain business-related timing considerations, an announcement date during the first week of September 2007 was not reasonably practicable, the Board of Directors determined not to engage in further discussions with Party A at that time. The Board of Directors directed management to inform Party A of its decision, which was orally conveyed to Party A by Mr. Smith on the same date. In addition, based on the belief that, if given an opportunity to conduct a due diligence investigation of the Company, ITT would likely make an offer superior to that proposed by Party A, the Board of Directors authorized the Company’s management to enter into a confidentiality and non-disclosure agreement with ITT in connection with ITT’s acquisition proposal.

On or about July 31, 2007, the Company and ITT entered into a confidentiality and non-disclosure agreement.

On August 2, 2007, Mr. Smith advised Mr. Loranger that the Board of Directors had received a proposal from another bidder at a price above the $42.00 to $44.00 per share range proposed by ITT. Mr. Smith also indicated that any proposal at a price that did not exceed $45.00 per share would likely not be successful and outlined a proposed due diligence timeline. ITT commenced its due diligence investigation of the Company shortly thereafter.

On August 7, 2007, representatives of the Company, together with representatives of our financial advisor, met with representatives of ITT and its advisors in connection with the proposed transaction between ITT and the Company. At the meeting, ITT and its financial advisors provided to representatives of the Company an overview of ITT and its business and made a presentation regarding the benefits of a business combination between the Company and ITT. Also at the meeting, the Company provided to ITT two sets of the Company’s internal financial projections for fiscal years 2007 through 2011, one of which was based on the Company’s then current revenue growth rate, and the other on an anticipated increased revenue growth rate during the period 2007-2011 resulting from the two government contracts awarded to the Company in April 2007 and the recently announced increase in quantities ordered under one of those contracts.

On August 14, 2007, the Company received a confirming letter from Party A, containing a proposal to acquire the Company at a price of $45.00 per share. The letter indicated that Party A considered that proposal its final offer. The letter did not stipulate (as Party A previously stipulated orally) the requirement to announce the transaction no later than the first week in September 2007, but instead offered the possibility of re-engaging at an unspecified later date.

On August 17, 2007, the Board of Directors held a telephonic meeting to discuss a potential transaction with ITT. At this meeting, representatives of Debevoise reviewed with the Board of Directors its duties and responsibilities under New York law. The Board of Directors also considered whether it would be advisable to conduct an auction of the Company. Based on the fact that the Board of Directors was responding to an unsolicited acquisition proposal rather than pursuing a sale of the Company, as well as the Board of Directors’ concern that such an auction could adversely affect the Company’s relationship with the DOD in connection with the major government programs that had been recently awarded to the Company and were in early stages of implementation at that time, as well as the substantial disruptive effect that such an action would likely have on the Company’s employees at a critical juncture in the Company’s growth, the Board of Directors determined that it would not be advisable to conduct such an auction or any other marketing efforts with respect to the Company.

On August 20, 2007, Debevoise distributed to Simpson Thacher & Bartlett LLP (referred to in this proxy statement as “Simpson Thacher”), ITT’s legal advisors, a draft merger agreement, substantially in the form that had been negotiated by the Company with Party A.

On August 30, 2007, members of our senior management met with members of ITT’s senior management to discuss the proposed transaction. At the meeting, representatives of ITT requested certain additional information as part of ITT’s due diligence investigation of the Company. ITT’s representatives also indicated that ITT was committed to making a definitive proposal in the near future.

On August 30, 2007, to ensure continuity and to continue with the implementation of the Company’s existing plan of succession, the Company and Mr. Smith entered into an agreement that modified and extended the provisions of Mr. Smith’s employment agreement for up to an additional twelve month period, ending on the earlier of May 31, 2009 or the date of the Company’s 2009 Annual Meeting.

Also on August 30, 2007, the Company received an indication from the DOD that an increase in production quantities was expected under one of the government contracts previously awarded to a subsidiary of the Company, and that a request for confirmation that the proposal the Company had submitted to the DOD to launch a second production facility was still in effect. The DOD also indicated that it would seek a source of funding for such a facility.

On August 31, 2007, representatives of the Company informed representatives of ITT that the financial projections it had provided on August 7, 2007 based on the Company’s then current growth rate no longer constituted valid representations of the Company’s expected performance given the number of positive developments affecting future revenues, and that ITT should refer only to the higher-growth rate projections that had also been provided to it on August 7, 2007.

On September 4, 2007 and September 7, 2007, the DOD publicly announced that, as indicated to the Company on August 30, it intended to modify government contracts previously awarded to subsidiaries of the Company to provide for substantial increases in the number of units to be manufactured and supported by the Company under the contracts on a sole source basis.

In early September 2007, Party A contacted Mr. Smith, who, during their discussion, advised Party A that another party had made an unsolicited offer to acquire the Company.

On September 6, 2007, members of our senior management, together with our legal advisors, met with members of ITT’s senior management and legal advisors to discuss the terms of the proposed transaction. At the meeting, ITT’s representatives reiterated their intention to make a definitive proposal within the following few days.

On September 7, 2007, Mr. Loranger contacted Mr. Smith and advised him that ITT’s proposal to acquire the Company would be at a price per share slightly above the then-current market price. However, Mr. Loranger did not specify a price. In response, Mr. Smith pointed out that the Company’s common shares were trading at a per share price of approximately $48.00, which he believed did not reflect the positive developments concerning the Company recently announced by the DOD. Accordingly, Mr. Smith advised Mr. Loranger that, in his view, the purchase price proposed by ITT was below the range that the Board of Directors would consider acceptable. Mr. Loranger then indicated a willingness to reassess ITT’s valuation of the Company.

On September 9, 2007, the Board of Directors held a telephonic meeting. During the meeting, Mr. Smith reviewed his recent conversation with Mr. Loranger and the current status of ITT’s due diligence. Based on the Board of Directors’ familiarity with the Company’s business and estimates for growth, and following discussion of these and other considerations, the Board of Directors determined that any price below $56.00 per share would not reflect the full value of the Company.

On September 10, 2007, Mr. Smith contacted Mr. Loranger by telephone and advised him that the Board of Directors would be willing to entertain a revised proposal from ITT, but that the minimum price which the Board of Directors was willing to consider was $56.00 per share. Also that day, Simpson Thacher provided to Debevoise ITT’s comments on the draft merger agreement.

On September 11, 2007, Mr. Loranger informed Mr. Smith that, based on additional information that had been provided to ITT by the Company’s senior management, ITT was willing to make a proposal to acquire the Company at a price of $56.00 per share.

On September 12, September 14 and September 15, 2007, the parties and their legal advisors had several conference calls to negotiate the terms of the merger agreement, including the “no-shop” and “fiduciary out” provisions, the termination fee and expense reimbursement payable by us to ITT in certain circumstances if the proposed merger is not completed, certain representations and warranties of the parties, the definition of “material adverse effect”, and certain employee benefits provisions. The parties and their legal advisors also negotiated and agreed the terms of a shareholder voting agreement to be entered into by certain management shareholders concurrently with the execution of the merger agreement.

On September 14, 2007, after the stock market closed, the DOD announced that it was exercising options under one of the government contracts previously awarded to a subsidiary of the Company to provide for an additional number of units to be manufactured and supported by the Company under the contract.

On September 16, 2007, the Board of Directors held a meeting, which was also attended by representatives of our legal and financial advisors, to review the proposed transaction with ITT. At the meeting, representatives of Debevoise reviewed with the Board of Directors its fiduciary duties under New York law, described the proposed terms of the merger agreement, highlighted the resolution of significant commercial and legal issues and provided a comparative analysis of the principal provisions of the proposed merger agreement with the relevant terms of the proposed merger agreement with Party A that had been previously reviewed by the Board of Directors. Also at this meeting, Citi rendered to the Board of Directors an oral opinion, which was confirmed by delivery of a written opinion dated September 16, 2007, to the effect that, as of that date and based on and subject to the matters described in its opinion, the $56.00 per share merger consideration was fair, from a financial point of view, to the holders of our common shares. After considering, among other things, the factors described below under “THE MERGER—Recommendation of the Board of Directors; Reasons for the Merger,” the Board of Directors, in an executive session in which only the members of the Board of Directors participated, by the unanimous vote of the directors present, adopted resolutions approving the merger, the merger agreement and the other transactions contemplated thereby and recommending that our shareholders approve and adopt the merger agreement.

On the evening of September 16, 2007, the Company and ITT executed the merger agreement, and Mr. Smith, Mr. Bassett, Ms. Palumbo and Mrs. Comiskey executed the shareholder voting agreements.

On September 17, 2007, the parties issued a joint press release announcing the transaction.

On September 19, 2007, after the DOD cleared the Company to issue a press release, the Company announced that, as the DOD had previously announced on September 14, 2007, the DOD was exercising options under one of the government contracts previously awarded to a subsidiary of the Company to provide for an additional number of units to be manufactured and supported by the Company under the contract.