General Dynamics in IT Shootout -- WSJ

By Dana Mattioli and 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 19, 2018).

CACI International Inc. has made a roughly $7.2 billion bid to buy CSRA Inc. in an attempt to break up the information-technology provider's sale to General Dynamics Corp.

CACI has offered $44 per share in cash and stock, the company said in a statement Sunday, confirming an earlier report by The Wall Street Journal. The bid consists of $15 a share in cash and the rest in stock. That compares with the $40.75-a-share all-cash deal CSRA agreed to last month with General Dynamics that has yet to close.

CSRA on Sunday confirmed receiving the unsolicited proposal from CACI and said it would review it, though the board continued its support for General Dynamics' offer.

It would be a big bite for Arlington, Va.-based CACI, which has a market value of just under $4 billion even after its shares closed at an all-time high Friday. It could have a difficult time outgunning General Dynamics, a major aerospace-and-defense contractor with a market value of $66 billion.

In a separate statement Sunday, CACI raised its forecast for net income and the lower end of its revenue guidance for fiscal 2018.

General Dynamics late Sunday said that it would continue its tender offer for CSRA that is due to close on April 2, and questioned elements of CACI's unsolicited bid.

"We believe the nominal price of CACI's offer to CSRA overstates the real value to the CSRA shareholders and understates the risk attendant to it," General Dynamics said in a statement.

CSRA was approached by two companies early last year about a potential combination, according to a prior regulatory filing, triggering a three-way battle that General Dynamics appeared to have won. CACI was one of those companies, according to people familiar with the discussions.

Its latest move comes amid a scramble for greater scale among companies supplying the Pentagon and other government agencies with IT and analytic services.

Rising defense budgets and the boom in commercial jetliner sales have fueled a surge in deal-making in the aerospace and defense sectors.

Last year, United Technologies Corp. agreed to buy Rockwell Collins Inc. for $23 billion in a deal that would create one of the world's biggest aircraft-equipment makers. Northrop Grumman Corp. struck a deal to buy defense contractor Orbital ATK Inc. for $7.8 billion.

Government departments are going through a major refresh of antiquated IT systems, including switching more services to the cloud and boosting cybersecurity. That has helped fuel deal-making over the past five years, with CACI buying intelligence specialist Six3 Systems Inc. and the IT arm of L-3 Communications Holdings Inc.

Other big providers include Leidos Inc., which bought the IT arm of Lockheed Martin Corp. to create an industry leader with forecast sales of $10.6 billion this year.

CSRA is forecast to have sales of $5.4 billion this year and has some of the highest margins in the sector. A purchase of the company would double the size of General Dynamics' federal IT business.

CACI and General Dynamics' IT arm were both forecast to have revenues of $4.5 billion this year.

CSRA was formed two years ago when Computer Sciences Corp. merged its federal arm with SRA International Inc., renaming the remaining business DXC Technology Co.

DXC plans to bundle more federal IT assets, including two firms acquired from private-equity investor Veritas Capital, into a new stand-alone public company in May. Some analysts had expected CACI to consider a bid for the as-yet unnamed company, which would have annual sales around $4 billion.

Write to Dana Mattioli at [e-mail] and Doug Cameron at [e-mail]

(END) Dow Jones Newswires

March 19, 2018 02:47 ET (06:47 GMT)

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