General Dynamics Unveils $9.6B Takeover of IT Vendor

(CN) – Defense contractor General Dynamics touted a $9.6 billion takeover Monday of the internet-technology company CSRA. The move comes on the heels of the Pentagon’s biggest budget appropriation in its history.

Headquartered in Falls Church, Virginia, General Dynamics said it will acquire all outstanding shares of CSRA for $40.75 in cash. The transaction also includes the assumption of $2.8 billion in CSRA debt.

While General Dynamics had a revenue of $31 billion in 2017, CSRA’s fiscal-year 2017 revenue was $5 billion.

Phebe Novakovic, chairman and CEO of General Dynamics, told investors in a webcast this morning that the combined companies will see “approximately $9.9 billion in revenue and double-digit EBITDA margins in the consolidating government technology services sector.”

General Dynamics also expects to generate savings of approximately 2 percent of the combined company’s revenue by 2020 in estimated annual pre-tax cost.

With CSRA’s “innovative, next-generation IT solutions,” Novakovic said General Dynamics will be in a stronger position to serve the Defense Department, the intelligence community and federal civilian agencies with cost-effective IT solutions and services.

Larry Prior, CEO and president of CSRA, also promoted the merger as creating “a clear, differentiated leader in the federal IT sector, with a full spectrum of enterprise IT capabilities, including unique depth in Next-Gen offerings in conjunction with our commercial IT alliance partners.”

The boards of both companies unanimously approved the merger, but it must still hurdle antitrust clearance and the tender of a majority of the outstanding shares of CSRA common stock.

General Dynamics said it expects to complete the acquisition in the first half of 2018.

“Upon completion of the transaction, General Dynamics anticipates retaining strong credit ratings with net debt of approximately $10.5 billion,” the company said in a statement.

General Dynamics also noted that Stone Key Group served as its exclusive financial adviser and that Jenner & Block served as legal counsel.

Evercore and Macquarie Capital served as financial advisers to CSRA, with the firm Paul, Weiss, Rifkind, Wharton & Garrison serving as legal counsel.

News of the merger caused CSRA’s shares to jump almost 32 percent Monday morning.

Just this past Friday, President Donald Trump signed a budget that provides $700 billion for the Pentagon with massive spending increases for the military.

The $94 billion carved out for the Pentagon marks a 15.5 percent jump from last year — the biggest year-over-year increase since 2003 when America was fighting in Afghanistan, invading Iraq and expanding national defense after the 9/11 attacks. From $345 billion in 2002, the budget saw a 26.6 percent boost to $437 billion.

Trump’s budget is expected to increase the Defense Department’s funding in 2019 to $716 billion.

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