CSRA Csra Inc.

By Doug Cameron 

This article is being republished as part of our daily reproduction of WSJ.com articles that also appeared in the U.S. print edition of The Wall Street Journal (March 21, 2018).

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, valuing its target at $6.9 billion.

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, or $7.2 billion.

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 21, 2018 02:47 ET (06:47 GMT)

Copyright (c) 2018 Dow Jones & Company, Inc.