Engineered Support Systems (NASDAQ:EASI)
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DRS Technologies, Inc. (NYSE: DRS) and Engineered
Support Systems, Inc. (NASDAQ: EASI) jointly announced today that they
have signed a definitive agreement for DRS to acquire all of the
outstanding stock of Engineered Support Systems, Inc. (ESSI) for
$43.00 per share through a combination of cash and DRS common stock.
The acquisition is expected to be accretive for DRS in its first
full fiscal year of operation with DRS ending March 31, 2007,
contributing approximately $0.20 to earnings per share and
approximately $1.23 billion to revenues.
Upon completion of the acquisition, ESSI will become DRS's third
operating group, focused on support and services.
Strategic Highlights
In making the announcement, Mark S. Newman, DRS Technologies'
chairman, president and chief executive officer, commented, "The
acquisition of Engineered Support Systems will create a strong,
diverse company, adding a significant business base in technical and
logistics support services, integrated military electronics and
support equipment with broad access to a variety of government funding
accounts, including procurement and operations and maintenance (O&M).
Engineered Support Systems is uniquely focused on sustainment of
military forces and respected as a rapid-response solutions provider.
The combination of the two companies will firmly establish DRS
Technologies as a leading provider of defense electronics products and
services with a run rate in excess of $2.5 billion in annual revenues
and a major role in armed forces modernization, personnel mobility and
O&M support. An important milestone in the growth of our company, this
acquisition will strengthen our strategic position and expand our
program participation and platform applications with all of the
military services, while providing new opportunities for growth in
intelligence and homeland security markets."
Gerald A. Potthoff, vice chairman and chief executive officer of
Engineered Support Systems, added, "This is another exciting chapter
for ESSI, taking our company to the next level and delivering
excellent value to our stockholders. DRS Technologies is a
highly-regarded presence in defense technology, and with ESSI will
become a sizable, diversified industry competitor, strategically
positioned for exciting growth opportunities. We believe the
combination will benefit customers, business associates, investors and
employees. This transaction undoubtedly will bolster the combined
company's ability to accomplish its mission to support the military's
near-term force modernization and emerging transformation
initiatives."
DRS Technologies said the acquisition offers opportunities to
leverage synergies and to accomplish several objectives. It is
expected to:
-- Enhance DRS's market leadership position, adding to its
critical mass and extensive array of products and
significantly expanding the company's logistics support and
services business;
-- Complement the company's customer base, strengthening
positions with the U.S. Army, Air Force and Navy, intelligence
agencies, prime contractors and international military forces;
-- Increase access to government funding budgeted within the
procurement and O&M accounts;
-- Increase content on military programs, including those related
to power generation, conversion, distribution and power
management; electro-optical and infrared (EO/IR) technology;
vehicle diagnostics and automated test equipment; and radar
systems;
-- Enhance technology capabilities in intelligence through
satellite communications (SATCOM)/wireless services and
systems integration;
-- Broaden DRS's homeland security capabilities;
-- Diversify the company's program base so that no single product
or program accounts for more than 3 percent of annual revenues
and the ten largest programs account for approximately 20
percent; and
-- Generate earnings accretion and strong free cash flow.
Transaction Details
Under the terms of the acquisition, each share of ESSI common
stock will be converted into the right to receive a combination of
$30.10 in cash and a portion of a share of DRS common stock valued at
$12.90, provided that the average closing price of DRS's common stock
prior to the closing of the transaction is between $46.80 and $57.20.
The exchange ratio will increase or decrease in proportion to the
average closing price of DRS's common stock. A collar provides that
the exchange ratio will not exceed 0.2756 of a share nor be less than
0.2255 of a share of DRS common stock.
The cash portion of the acquisition, together with the debt of
ESSI to be refinanced, will aggregate approximately $1.49 billion at
closing. Total consideration for the acquisition, including an
estimated $88.3 million of ESSI's debt to be refinanced at closing, is
approximately $1.97 billion.
DRS expects to finance the cash portion of the acquisition by
utilizing existing excess cash on hand and through a combination of
bank borrowings and the issuance of debt securities.
"We have constructed an offer that balances prudent financing with
our objective to deliver earnings accretion and top-line growth," said
Richard A. Schneider, DRS Technologies' executive vice president and
chief financial officer. "This approach is consistent with our
experience on the acquisition of Integrated Defense Technologies in
2003, whereby we delivered on our commitment to deleverage net debt to
earnings before income taxes, depreciation and amortization (EBITDA)
from 4.0 to 2.9 in two years and achieve meaningful earnings accretion
and growth."
The transaction is expected to close before the end of DRS's
fiscal 2006 and is subject to customary regulatory approvals and other
closing conditions, including approval by DRS's and ESSI's
stockholders at respective special stockholder meetings.
Bear, Stearns & Co. Inc. is serving as financial advisor to DRS on
the transaction and has provided committed financing necessary for DRS
to consummate the acquisition and for ongoing working capital needs.
Merrill Lynch & Co., Inc. also is serving as financial advisor to DRS
for the purpose of rendering a fairness opinion. Lehman Brothers Inc.
is serving as financial advisor to ESSI on the transaction.
About Engineered Support Systems
Engineered Support Systems, headquartered in St. Louis, Missouri,
is a diversified supplier of integrated military electronics, support
equipment and technical services focused on advanced sustainment and
logistics support solutions for all branches of the U.S. armed
services, major prime defense contractors, certain international
militaries, homeland security forces and selected government and
intelligence agencies. ESSI also produces specialized equipment and
systems for commercial and industrial applications. Operating through
two business segments - Support Systems and Support Services - ESSI is
comprised of 14 subsidiaries and employs 3,600 people. Primary areas
of expertise include engineering, logistics and training; advanced
technology; asset protection systems; telecommunications and
information technology; integrated logistics; systems integration;
heavy and light military support equipment; power generation equipment
and defense electronics systems.
About DRS Technologies
DRS Technologies, headquartered in Parsippany, New Jersey,
provides leading edge products and services to defense, government
intelligence and commercial customers. Focused on defense technology,
DRS develops and manufactures a broad range of mission critical
systems. The company employs 6,000 people worldwide.
For more information about DRS Technologies, please visit its web
site at www.drs.com. For more information about Engineered Support
Systems, please visit its web site at www.engineeredsupport.com.
SAFE HARBOR STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION
REFORM ACT OF 1995: This press release contains forward-looking
statements, within the meaning of Section 27A of the Securities Act of
1933, as amended, and Section 21E of the Securities Exchange Act of
1934, as amended, that are based on management's beliefs and
assumptions, current expectations, estimates and projections. Such
statements, including statements relating to DRS Technologies' and
Engineered Support Systems' expectations for future financial
performance, are not considered historical facts and are considered
forward-looking statements under the federal securities laws. These
statements may contain words such as "believes," "anticipates,"
"plans," "expects," "intends," "estimates" or similar expressions.
These statements are not guarantees of the companies' future
performance and are subject to risks, uncertainties and other
important factors that could cause actual performance or achievements
to differ materially from those expressed or implied by these
forward-looking statements and include, without limitation, demand and
competition for such companies' products and other risks or
uncertainties detailed in such companies' Securities and Exchange
Commission filings. Given these uncertainties, you should not rely on
forward-looking statements. Such forward-looking statements speak only
as of the date on which they were made, and the companies undertake no
obligations to update any forward-looking statements, whether as a
result of new information, future events or otherwise.
ADDITIONAL INFORMATION ABOUT THE MERGER AND WHERE TO FIND IT: DRS
Technologies and Engineered Support Systems intend to file with the
Securities and Exchange Commission one or more registration statements
on Form S-4 that will include a joint prospectus and proxy statement
to stockholders of DRS Technologies, Inc. and Engineered Support
Systems, Inc. and other relevant documents in connection with the
proposed transaction. INVESTORS AND SECURITY HOLDERS OF DRS
TECHNOLOGIES AND ENGINEERED SUPPORT SYSTEMS ARE URGED TO READ THE
JOINT PROXY STATEMENT/PROSPECTUS AND OTHER RELEVANT MATERIALS IF AND
WHEN THEY BECOME AVAILABLE BECAUSE THEY WILL CONTAIN IMPORTANT
INFORMATION ABOUT DRS TECHNOLOGIES, ENGINEERED SUPPORT SYSTEMS AND THE
PROPOSED TRANSACTION. Investors and security holders may obtain a free
copy of these materials (when they are available) and other documents
filed with the Securities and Exchange Commission at the Securities
and Exchange Commission's web site at www.sec.gov. A free copy of the
joint proxy statement/prospectus, when it becomes available, also may
be obtained from Engineered Support Systems, Inc., 201 Evans Lane, St.
Louis, MO 63121, Attn: Investor Relations, and from DRS Technologies,
Inc., 5 Sylvan Way, Parsippany, NJ 07054, Attn: Investor Relations. In
addition, investors and security holders may access copies of the
documents filed with the Securities and Exchange Commission by
Engineered Support Systems on its web site at
http://www.engineeredsupport.com, and investors and security holders
may access copies of the documents filed with the Securities and
Exchange Commission by DRS Technologies on its web site at
http://www.drs.com. Engineered Support Systems, DRS Technologies and
their respective executive officers and directors may be deemed to be
participants in the solicitation of proxies from their respective
stockholders with respect to the proposed transaction. Information
regarding DRS Technologies' directors and executive officers is
available in its proxy statement filed with the Securities and
Exchange Commission by DRS Technologies on June 30, 2005, and
information regarding Engineered Support Systems' directors and
executive officers is available in its proxy statement filed with the
Securities and Exchange Commission by Engineered Support Systems on
January 31, 2005. Other information regarding the participants in the
proxy solicitation and a description of their direct and indirect
interests, by security holdings or otherwise, will be contained the
joint proxy statement/prospectus and other relevant materials to be
filed with the Securities and Exchange Commission when they become
available.
This communication shall not constitute an offer to sell or the
solicitation of an offer to buy any securities, nor shall there be any
sale of securities in any jurisdiction in which such offer,
solicitation or sale would be unlawful prior to registration or
qualification under the securities laws of any such jurisdiction. No
offering of securities shall be made except by means of a prospectus
meeting the requirements of Section 10 of the Securities Act of 1933,
as amended.
Note to Investors:
DRS Technologies will host a conference call, which will be
simultaneously broadcast live over the Internet. Mark S. Newman,
chairman, president and chief executive officer, Richard A. Schneider,
executive vice president and chief financial officer, and Patricia M.
Williamson, vice president, corporate communications and investor
relations, will host the call, which is scheduled for today, Thursday,
September 22, 2005 at 9:30 a.m. EDT. Listeners can access the call
live and archived by visiting DRS's web site at
http://www.shareholder.com/drs or by visiting Thomson CCBN's
institutional investor site at http://www.streetevents.com or
individual investor center at http://www.fulldisclosure.com. Please
allow 15 minutes prior to the call to visit one of these sites and
download and install any necessary audio and virtual viewing software.