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CSRA-CACI Buyout Deal Cancelled, GD Deal in Progress

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CSRA Inc.  recently met with rejection regarding the acquisition offer from CACI International Inc (CACI - Free Report) , paving the way for General Dynamics’ (GD - Free Report) $9.7 billion epic buyout offer.

Per the U.S. Securities and Exchange Commission, CACI is now withdrawing its proposed $7.2 billion in cash takeover, losing a month-long bidding war to General Dynamics.

The move came after General Dynamics revised its merger agreement to acquire all outstanding shares of CSRA for $41.25 per share in cash, an increase from the previous $40.75 per share offer. This made it hard for CACI to compete and enabled it to take a step back.

According to analysts, “Given that General Dynamics' offer is in cash, it represents considerably less risk than CACI's cash-and-stock bid.”

Story of the Deal

CACI had offered to merge with CSRA in a bid to disrupt the latter's buyout proposition by General Dynamics. The strategic move comes after CSRA agreed to sell itself to General Dynamics last month for $40.75 per share in cash, as companies in the sector seek to position themselves for a pickup in government spending under the Trump administration.

General Dynamics: The Clear Winner?

In spite of the unsolicited offer that CACI made to acquire CSRA, General Dynamics remains confident of the deal and plans to proceed with its tender offer to acquire CSRA’s all outstanding shares. Notably, the tender offer for CSRA shares has commenced on Mar 5, 2018, and is scheduled to expire on Apr 2. With General Dynamics having secured the necessary regulatory approvals for the transaction, the chance of CACI snatching the deal from this shipbuilder is highly unlikely.

Moreover, General Dynamics believes that CACI’s offer overstates the real value to the CSRA shareholders and understates the involved risk. It is also of the opinion that CACI's proposal would burden CSRA with approximately $6.8 billion of debt, once acquired.

Another implication of the deal is time value of money for investors as CACI would close the acquisition formalities by July 31, 2018. This means, if CACI wins the bid for CSRA, investors will incur significant opportunity cost due to the four-month lag, whereas General Dynamics aims to complete the transaction by early April.

Also, the real value of CACI’s stock tends to remain uncertain due to the market risks associated with the CACI transaction, closing four months in the future, with more than 65% of its stock consisting of a fixed exchange ratio.

CSRA’s Growth Prospects

Recently, Alphabet Inc.’s (GOOGL - Free Report) Google Cloud partnered with CSRA. Per the new alliance, CSRA will leverage Google Cloud Platform and G Suite products to the IT needs of government customers. The latest deal is an extension of Google’s ongoing partnership with CSRA.

CSRA’s product portfolio will also strengthen and will help in acquiring more federal contracts by improvising its key offering of IT solutions. In February 2018, it signed a million-dollar deal with the Uniformed Services University of Health Science with the earlier expansion of its partnership with Google.

CSRA is benefiting from contract wins, based on its deep domain knowledge and expertise in next-generation IT services. Its partnerships with Amazon Web Services, ServiceNow, Microsoft, Cisco Systems, VMware and Oracle are expanding its service offerings while driving top-line growth consequently. The company is also expected to benefit from the increased spending in defense and various environmental programs.

Further, strong backlog, strategic partnerships and frequent contract wins augur well for the company. These positive factors make CSRA a potential acquisition target.

Zacks Rank and Key Picks

CSRA currently carries a Zacks Rank #3 (Hold).

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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