Aerospace & Defense

Will General Dynamics' Raised Offer for CSRA Seal the Deal?

General Dynamics Corp. (NYSE: GD) on Tuesday boosted its merger offer for CSRA Inc. (NYSE: CSRA) by $0.50 a share to $41.25 a share in a transaction now valued at $9.7 billion, including $2.8 billion in CSRA debt. The offer counters a cash and stock deal valued of $44.00 a share from much smaller CACI International Inc. (NYSE: CACI).

The increased offer from General Dynamics still falls short of CACI’s offer, but CSRA’s board concluded that the higher offer “could not reasonably be expected to lead to a Company Superior Proposal (as defined in the merger agreement).”

According to General Dynamics’ press release:

In reaching that determination, CSRA’s Board of Directors took into account various factors, including among others, the value, certainty of value, certainty of closing and speed to closing of the General Dynamics offer, as amended, as compared to the CACI proposal. CSRA’s Board of Directors recommends that CSRA stockholders tender their shares of CSRA common stock pursuant to the General Dynamics tender offer.

The tender offer expires at 11:59 p.m. on April 2, unless it is extended.

CSRA was spun out of Computer Sciences Corp. (NYSE: CSC) in 2015 and when (if) combined with General Dynamics would be the second-largest provider of IT services to the federal government with estimated annual sales of $9.9 billion. Only Leidos would be larger, and General Dynamics would replace Booz Allen as the second-ranked federal computer services contractor.

We noted on Monday some analyst ratings and price targets on General Dynamics.

Following last week’s announcement of CACI’s unsolicited bid for CSRA, CACI’s stock dropped from $44 a share to $41.79 due to investor fears of the amount of debt the company would have to assume in order to complete the proposed acquisition. CACI would also be on the hook for a $204 million break-up fee.

General Dynamics stock traded up more than 1% at $226.42 late Tuesday morning, in a 52-week range of $183.72 to $230.00.

CSRA’s shares traded up about 1%, at $41.44 in a 52-week range of $27.38 to $41.46.

CACI traded up nearly 3% at $149.85 a share, in a 52-week range of $112.10 to $159.40. This is one of those times that investors like the idea of losing a takeover battle.