Coverage: CACI International seeks to disrupt General Dynamics bid for CSRA

U.S. defense contractor CACI International Inc. has offered to merge with larger peer CSRA Inc., seeking to disrupt the latter’s $6.8 billion acquisition by General Dynamics Corp.

Mike Stone and Greg Roumeliotis of Reuters had the news:

The move comes after CSRA agreed last month to sell itself to General Dynamics, another defense contractor, for $40.75 per share in cash, as companies in the sector seek to position themselves for a pickup in government spending under U.S. President Donald Trump’s administration.

CACI’s shares have jumped by more than a fifth in the last four months, emboldening the Arlington, Virginia-based company to use its currency to pursue a transformative deal, the three sources said on Sunday. CACI has a market capitalization of $3.9 billion, compared with CSRA’s $6.7 billion.

CACI’s $44 per share for CSRA offer consists of $15 per share in cash and 0.184 CACI shares for each CSRA share, one of the sources said. Under the terms of CACI’s offer, CSRA shareholders would own 55 percent of the combined company, according to the sources.

CSRA’s board has yet to respond to CACI’s offer, although its preference remains an all-cash deal, one of the sources said.

Thomas Black and Kevin Miller of Bloomberg News reported that CSRA itself was formed by an acquisition:

CSRA was formed in 2015 from the combination of SRA International with the government business of Computer Sciences Corp. The company is expected to have $5.4 billion of revenue in fiscal year 2018 ending March 31 and has about 19,000 employees, according to the presentation. Revenue is split in almost equal thirds among health and civil, defense, and intelligence.

CACI expects revenue to be as much as $4.5 billion for fiscal year 2018 that ends June 30. Tax reform will boost its net income by $100 million to as much as $283 million, the company said in a presentation following its latest earnings report, issued Jan. 31. The company’s organic sales have risen for four consecutive quarters as government contracts for IT work increase. The total backlog was $10.9 billion at the end of 2017.

On March 15, CACI said it was among 20 companies to win a Defense Information Systems Agency contract that could be as much as $17.5 billion over 10 years.

Dana Mattioli and Doug Cameron of The Wall Street Journal reported that it’s unclear is CACI will prevail:

CACI has offered $44 per share in cash and stock, according to a person familiar with the situation. That would top the $40.75-a-share all-cash deal CSRA agreed to last month with General Dynamics that has yet to close.

It isn’t clear what CSRA’s reaction to the bid is and whether CACI will ultimately prevail.

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.