General Dynamics Boosts Offer for CSRA--Update
March 20 2018 - 5:15PM
Dow Jones News
By Doug Cameron
General Dynamics Corp. raised its offer for CSRA Inc. in an
effort to fend off an unsolicited bid for the federal information
technology provider from rival CACI International Inc.
The maker of Abrams tanks and Gulfstream business jets lifted
its all-cash offer for CSRA to $41.25 a share from the $40.75 that
the two companies agreed to last month.
CACI, which also provides IT services to public-sector clients,
made its unsolicited cash and stock counterbid last week, at which
time the offer was valued at $44 a share.
The value was eroded on Monday when CACI's own share price slid
7.5% as investors expressed concern about the debt the company
would have to take on to finance a bid -- which also comes with a
$204 million break-up fee. The stock bounced back 4.2% on Tuesday,
valuing CACI's offer at around $43.
CSRA, whose shares rose 1.1% to $41.48 on Tuesday, said it
supported the new offer from General Dynamics and didn't view
CACI's counterbid as a superior offer.
General Dynamics has already secured antitrust approval for its
proposed deal, which would create one of the largest government IT
providers with annual sales of almost $10 billion. It has already
launched a tender offer for CSRA shares that runs through April
2.
Analysts expressed surprise that General Dynamics opted to raise
its bid given the negative reaction by investors to CACI's offer.
The defense contractor on Sunday criticized elements of CACI's bid,
questioning the targeted synergies and July closing date.
Still, some analysts said CACI's move could trigger further deal
making in a sector that has already consolidated in recent years as
government departments opt to award larger, enterprise-wide
contracts.
One of the biggest prizes involves a plan by the Pentagon to
migrate much of its data to the cloud. The Defense Department is
expected to award a single contract this year that could be worth
as much as $10 billion.
While shares of many federal IT companies are close to their
all-time highs, analysts remain concerned that the sector could be
caught in the current federal budget impasse.
Congress has yet to appropriate funds under the fiscal 2018
budget, and contracts are awarded under a temporary measure called
a continuing resolution.
IT-related contracts tend to be on shorter terms than deals for
hardware such as aircraft or ammunition, and have to be regularly
refreshed. An extension of the temporary budget into April or
beyond would cap funding at fiscal 2017 levels, well below that
proposed in the 2018 budget.
Write to Doug Cameron at doug.cameron@wsj.com
(END) Dow Jones Newswires
March 20, 2018 17:00 ET (21:00 GMT)
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