Feud Over CACI's Future Takes a Turn to Courts

By Nick Wakeman

The gloves have come off in the fight between the management and directors of CACI International Inc. and dissident shareholder Alan Parsow, who wants to force a sale of the systems integrator.

On Nov. 3, the company sent a proxy letter from top CACI executives to shareholders warning them of the dangers in supporting Parsow and the slate of directors he wants elected to CACI's board. A vote to pick members of CACI's board will be held Dec. 9 at the company's annual shareholders meeting in Alexandria, Va.

In response, Parsow filed a lawsuit against CACI Nov. 10 in U.S. District Court in Delaware, alleging that the proxy letter violates Securities and Exchange Commission rules because it includes "misrepresentations and omissions" about him.

"We felt it was time for [Parsow's] record to be known, and we chose this opportunity to do that," John "Jack" London, CACI chairman and chief executive, told Washington Technology.

The company, which specializes in simulation, software development, information assurance and electronic commerce, is on track to break the $500 million revenue barrier in 2000, London said.

Parsow served on CACI's board from 1993 to 1997 and has been investing in the company since the mid-1980s. He now owns 5.1 percent of CACI's shares and is pushing for a sale of the Arlington, Va.-based company as the best way to boost shareholder value.

While a member of the board, Parsow often pushed for a sale of the company and had an adversarial relationship with London. Both London and Parsow expressed confidence that they would prevail at the shareholders meeting.

Some analysts think London's position is too strong, and one said a sale would be the best move for shareholders.

"I don't think Parsow is going to be a big threat to the company. He is a big distraction," said William Loomis, an analyst with Legg Mason Inc. of Baltimore.

"There is no reason to believe Parsow will be able to take over the board," said Michael Coady, an analyst with Sidoti & Co. of New York. CACI is an attractive takeover target, he said, but a buyout offer would have to be at a level substantially higher than the stock's current price, which was trading at $22.63 a share Nov. 15. To shop the company at its current level would not enhance shareholder value, he said.

Parsow's actions have had a positive effect on CACI, and a sale of the integrator would be the best move for shareholders, according to Seth Feinstein, an analyst with Crowell, Weedon & Co. of Los Angeles.

CACI was "plodding along" until Parsow started pressuring the company, Feinstein said. Since then, CACI has been more aggressive in letting shareholders know what it is doing and has articulated a more aggressive business strategy, he said.

"I would love to see Alan Parsow's people get on the board," said Feinstein, who owns shares of CACI. He would not predict success for Parsow, but said: "I can't rule it out as unlikely."

Amid this latest battle with Parsow, CACI has continued to follow it business strategy, including making acquisitions. It signed a letter of intent Nov. 9 to acquire Xen Corp. of Fairfax, Va., for an undisclosed amount. Xen, which had $8.5 million in 1999 revenue, provides systems engineering, distance learning, training development, electronic commerce and data security services to intelligence agencies, the Navy and Department of Defense.

CACI also plans to sell its Comnet products group by Dec. 31 to Compuware Corp., Farmington Hills, Mich., for about $40 million in cash as part of a plan to focus on higher-end information technology areas, such as electronic commerce, network services and telecommunications. Comnet had about $7 million in 1999 revenue selling simulation tools and products.

The timing of the deals has nothing to do with the impending shareholders meeting or the battle with Parsow, London said.

"We are implementing our plan. These two transactions have been in the mill in one way or another for a while," he said.

The six-page proxy letter that triggered the lawsuit by Parsow starts with the heading, "Urgent Message for All CACI Shareholders. Defend Your Investment in CACI." It contains headings such as "Why is Parsow a Threat to Your Investment?" and "Parsow Makes Self-Serving Demands to Sell Your Company at Prices Below Its Value."

In his lawsuit, Parsow listed 10 companies that have approached CACI about an acquisition, but said the integrator and its board chose not to pursue negotiations.

Those companies are: Anteon Corp., BDM International Inc. (now part of TRW Inc.), BTG Inc., Computer Data Systems Inc. (now part of Affiliated Computer Services Inc.), DynCorp, Harris Corp., Kiewitt Information Systems, Nichols Research Corp., Tracor Inc. (now part of Marconi North America) and Wang Global (now part of Getronics).

CACI has had "tons and tons of companies visit them, but the transactions never get done," Parsow told Washington Technology.

According to the lawsuit, Anteon has approached CACI twice, both times offering about $4.50 a share more than CACI's stock price. CACI was trading at about $16.50 a share when Anteon first bid. When it bid the second time, CACI was trading at about $20, according to the lawsuit.

During the past year, CACI share prices have ranged from $16 to $23.63.

Anteon President Joseph Kampf declined to comment on any talks with CACI but added, "we have an interest in CACI. We think it would be a good company to acquire."

London declined to comment on overtures CACI has received, but said that he and his board of directors take buyout offers seriously.

CACI's board has the skills to give offers the proper consideration, London said, adding that four members of the board have served as CEOs of Fortune 500 companies. CACI also works with outside advisers, such as investment banking firm CIBC Oppenheimer, when evaluating buyout proposals, London said.

In the proxy letter, CACI attacks Parsow's "incessant harping" that the company be sold, and defends the company's continued operation as an independent concern. The stock share price is up 800 percent since 1989, earnings are 400 percent higher and revenue is 300 percent higher, according to the proxy letter.

But Parsow said that over the past five years, technology companies on the S&P index have outperformed CACI's stock by more than 6 to 1. CACI's earning power is declining, he said.

And CACI stands virtually alone among publicly traded government information technology companies of its size that have not consolidated, Parsow said. "Every other company has realized that bigger is better," he said.

London said pursuing an independent course is the best way to build shareholder value. Company revenue rose 35 percent to $441.7 million in fiscal year 1999 compared to $326.1 million one year earlier.

Net income increased 21 percent to $14.2 million in 1999 compared with $11.7 million in 1998. May 19: Alan Parsow files notification with the Securities and Exchange Commission that he owns 5.1 percent of CACI stock and that he intends to force a sale of the company by gaining control of the company's board.

Sept. 15: Parsow files with SEC his list of nominees for CACI's board. The list includes himself and seven others.

Oct. 18: CACI files a proxy statement nominating its 11 nominees for the board. Ten, including Chairman John "Jack" London, are current members.

Nov. 3: CACI mails its proxy letter to shareholders warning them about Parsow and his slate of directors and the danger they pose to the company.

Nov. 10: Parsow files lawsuit against CACI alleging that the Nov. 3 proxy letter violates SEC regulations.Dec. 9: CACI shareholders will meet in Alexandria, Va.

Dec. 9: CACI shareholders will meet in Alexandria, Va.Business

Systems integration, simulation, telecommunications services, information assurance and electronic commerce


Location

Arlington, Va.

Founded

1962

Employees

4,200

1999 Revenue

$441 million

1999 Earnings

$14.2 million

Ticker

CACI on Nasdaq

Web site

www.caci.com