Former Telecommunication Systems shareholders sue over merger

When Stanley Magee first invested in TeleCommunications Systems Inc., he said he saw nothing but upside.

"They had a niche market and that was one that was going to grow," Magee said.

But when the company announced last year it would be acquired by New York-based Comtech Telecommunications Corp., he and other shareholders thought Telecommunications was selling itself short at $5 a share for about $430 million. It owned numerous patents in the secure communications field and had strong footholds in the cybersecurity industry, ones Magee said would only continue to grow considering recent terrorist events like those in Paris a week before the company's announcement.

He is now a plaintiff in a consolidated suit against TeleCommunications Systems' former top brass, including ex-CEO Maurice Tose, alleging the company's board of directors did not act in the best interest of its shareholders.

While one shareholder dropped his suit against the company earlier this month, two suits filed by Magee and fellow investor James Morakis were combined into a singular suit in February and is currently pending in Anne Arundel Circuit Court.

Whether Magee and Morakis succeed is dependent on the strength of the company's portfolio as of late last year, which saw varying reports of strengths and vulnerabilities leading up to November.

In the months preceeding the sale, Zacks Investment Research, an investment analysis firm, consistently ranked the company's stock strength as either a "Buy" or "Strong Buy," the second and top ranks respectively on its scale for purchasing stocks.

In a quarterly earnings report in October, the company's total revenue were up about 6 percent over the same period in 2014, at $101.1 million.

Tose said "there are good reasons to expect continued profitability improvement into 2016" in that report and pointed to a growing number of government-awarded projects and revenue.

However, these gains came after tumultuous beginnings. The company posted large losses in 2012 and 2013 and continued losses in 2014 led activist investors to restructure its board of directors and push out a top-ranking official.

The company's third quarter saw significant gains over the year before, with $143.6 million of debt compared to $51.6 million worth of cash and marketable securities.

Regardless, when Magee saw Johnson & Weaver LLP would be investigating whether the sale violated the board's fiduciary duty, he signed onto the effort.

"All I knew is they had a very good niche market," Magee said. "And I felt that they would probably go up and they did."

Calls for comment from Tose and ComTech were not returned by press time.

Reporter's Note: This story was updated to reflect Telecommunications Systems' accurate revenue numbers for the third quarter of 2014.