Electro Optic Systems Holdings Ltd (ASX: EOS) shares are on course to end the week with a bang.
In morning trade, the ASX All Ords share is up 16% to $1.23.
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Why is this ASX All Ords share rocketing?
The catalyst for today's gain has been news that the defence and space systems company is making a major divestment.
According to the release, the company has entered into a binding share sale agreement to sell its Naval Satellite Communications subsidiary, EM Solutions, to Cohort plc.
Cohort is a UK-based company that supports businesses to grow and innovate in defence technology, products, and services. It is the parent company of six businesses that provide technology-based services and products for international defence and security customers in government and industry.
The two parties have agreed on an enterprise value of $144 million, subject to customary adjustments. FIRB approval has already been obtained by Cohort, which means that completion is expected within six months.
Why sell this business?
The ASX All Ords share notes that the proposed transaction aligns with its transformation strategy to focus on commercialising its substantial intellectual property and growing its core product offerings in the areas of Remote Weapon Systems, High Energy Laser Weapons, and Space Control.
In particular, management advised that it sees a compelling growth opportunity in the counter-drone market for both Remote Weapon Systems and High Energy Laser Weapons.
Importantly, the sale of EM Solutions is expected to provide EOS with the funding flexibility to more fully pursue these growth opportunities.
The sale will also automatically trigger the repayment of the company's outstanding debt facility with Washington H Soul Pattinson and Company Ltd (ASX: SOL) in full. The total amount to be repaid including future monthly interest amounts is currently $64.4 million. After which, Electro Optic Systems will have no further borrowing.
In addition, it is anticipated that capital gains tax generated by the proposed transaction will be largely offset by existing tax losses.
Commenting on the deal, the ASX All Ords share's CEO and managing director, Andreas Schwer, said
The Proposed Transaction clearly demonstrates EOS' strategic focus and determination to succeed in the rapidly evolving and growing counter-drone market. We had strong interest from the market in the EM Solutions business, and by releasing capital at this time, we are very well placed to execute our EOS growth strategy. We will continue to deploy capital in a disciplined way. Given the AUKUS partnership, we believe that Cohort is the ideal owner for EM Solutions.
