UPDATE 1-Herley Industries fails to sell itself -- sources

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By Jui Chakravorty Das

NEW YORK, April 8 (Reuters) - Herley Industries Inc (HRLY.O), a U.S. defense electronics manufacturer, has failed to sell itself in an auction that was expected to draw interest from large defense contractors, two sources with knowledge of the matter told Reuters.

The company's board was not willing to accept the final bidder's offer, rejecting it as too low, the sources said. The sources declined to be identified because details of the auction have not been made public.

Herley will continue to explore strategic alternatives, they said.

Herley did not return calls for comment.

The company makes microwave technologies for the defense, aerospace and medical industries. It also supplies products to defense contractors such as Lockheed Martin Corp (LMT.N), Northrop Grumman Corp (NOC.N), Boeing Co (BA.N) and Raytheon Co (RTN.N).

Herley does not report its EBITDA (earnings before interest, tax, depreciation and amortization). It had a market capitalization of $157 million based on the stock's closing price of $11.58 on Tuesday, according to Thomson Reuters data. The stock fell 12 percent following the Reuters story on Wednesday, closing at $10.17 on the Nasdaq.

Valuations in the defense sector have fallen as the credit crisis and the weak economy hammered stocks in every industry. Investors have also become nervous as the rate of growth of the U.S. defense budget slows.