CACI Walks Away From $7.2B Bid To Buy Public Sector Rival CSRA

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CACI has shelved its bid to purchase fellow U.S. government solution provider CSRA for $44 per share, ensuring that General Dynamics' efforts to buy CSRA will continue unabated.  

Arlington, Va.-based CACI, No. 16 on the CRN Solution Provider 500, said it still believes that combining with Falls Church, Va.-based CSRA, No. 14 on the CRN Solution Provider 500, would be superior from a strategic and financial standpoint. CACI submitted its $7.2 billion bid on March 18, more than a month after defense contractor General Dynamics submitted its respective bid in a deal valued at $9.6 billion.   

"We will continue our aggressive pursuit of strategic opportunities, judiciously and without engaging in auctions at uneconomic levels," CACI CEO Ken Asbury said in a statement.

[RELATED: CSRA Board Turns Down CACI Acquisition Bid After General Dynamics Raises The Stakes]

CSRA's stock was down $0.10 (0.24%) to $41.23 per share in pre-market trading Wednesday, while CACI's stock price remained unchanged at $148.95 per share. CACI announced the withdrawal of its bid before the market opened Wednesday. CSRA didn't immediately respond to a request for comment.

A day after CACI submitted its bid, General Dynamics increased its all-cash acquisition offer from $40.75 per share to $41.25 per share, boosting the total valuation of the deal from $9.6 billion to $9.7 billion. Although CACI was willing to pay more on a per-share basis, the General Dynamics deal had a higher overall valuation thanks to General Dynamics' willingness to assume $2.8 billion in CSRA debt.

The CACI-CSRA combination would have created an industry-leading pure play titan in the federal IT services market, according to Asbury. CACI's view of projected growth of the federal budget for the IT sector also drove the company's enthusiasm and confidence in its offer to acquire CSRA, Asbury said.

"CACI is in a strong position for future growth," Asbury said in the statement. "We will continue to evaluate new opportunities to grow our business in ways consistent with our disciplined approach to M&A and the capture of major programs."

Under the terms of CSRA's initial agreement with General Dynamics, the defense contractor would have been owed $204 million if CSRA chose to pursue a deal with CACI.

General Dynamics has a $66 billion market capitalization, compared with a market valuation of just $3.88 billion for CACI. General Dynamics plans to make CSRA part of its information systems and technology division, which delivers IT solutions to the U.S. Department of Defense, intelligence outfits, and federal civilian agencies.

General Dynamics said the CSRA deal should boost its earnings per share in 2019, with projected pre-tax cost savings of 2 percent of combined revenue achievable by 2020.

Business jet, submarine, combat vehicle and communication systems are among the other services General Dynamics delivers to the government sector. Had the $9.7 billion General Dynamics-CSRA deal occurred in 2017, it would have been the third-largest tech merger or acquisition to take place in 2017, as seen in this round up of 2017 industry mergers and acquisitions.

The General Dynamics acquisition proposal expires at 11:59 p.m. ET on April 2. The company has said that its acquisition of CSRA will close shortly after the tender offer expires.

CSRA itself was a buyer last fall, scooping up Annapolis Junction, Md.-based Praxis Engineering Technologies for $235 million in a bid to boost its software and systems engineering capabilities within its intelligence community accounts.

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