CACI makes $7.2B bid for CSRA in effort to top General Dynamics' offer

(Editor's Note: this post has been updated with a statement from General Dynamics and information from CACI's offer letter for CSRA)

Confirming various media reports Sunday, CACI International said it has made a $7.2 billion cash-and-stock offer to acquire CSRA in an effort to top General Dynamics’ bid for the government IT contractor.

This offer could re-ignite a bidding war for the almost $5.4 billion-revenue CSRA, which received three offers before its Feb. 12 announcement that it would sell itself to its Falls Church, Virginia-based neighbor General Dynamics for $6.8 billion in cash, or $40.75 per share. CSRA also confirmed the new unsolicited offer from CACI in a release Sunday.

Officials from CSRA declined to comment beyond its media statement. In a statement of its own late Sunday night, General Dynamics said in a statement late Sunday night it will proceed with the tender offer for CSRA that started March 5 and is slated to expire April 3.

Arlington-based CACI is offering $44.00 per share in cash and stock for CSRA at an 8-percent premium over General Dynamics’ $40.75-per-share bid. As a public company, CSRA is required to consider the new offer and any others that could be deemed as superior bids.

CSRA said its board of directors has not changed its recommendation that shareholders tender their stock in favor of the General Dynamics offer. 

In its offer letter disclosed Monday, CACI touted its similar business model to that of CSRA as being "strategically focused on delivering high-end solutions and services for the federal IT market, with a serious appreciation for maintaining a competitive cost structure while investing for strategic growth."

CSRA shareholders would also have a stake in such a combination, CACI said. The $44.00-per-share offer breaks out to a $15.00 cash component and a ratio of 0.184 shares of CACI stock for each share of CSRA stock. That would give CSRA shareholders 55-percent ownership in the combined company.

In a separate media statement, CACI said the combination of its “mission solutions and services with CSRA’s broad range of next-generation enterprise capabilities would create a company able to provide customers with solutions that link domain and mission knowledge with industry-leading enterprise support offerings.”

General Dynamics and CSRA received clearance from federal antitrust officials last week to proceed on the deal they expect to close in the first half of this year pending the tender offer of CSRA shares in favor of the transaction.

The Wall Street Journal first reported the existence of CACI’s new offer prior to the official announcements from both CACI and CSRA.

Proxy filings that describe CSRA's talks with General Dynamics indicated the CSRA board of directors unanimously preferred GD’s all-cash offer compared to the two other cash-and-stock bids received.

Those filings describe competing bids for CSRA by “Company A” and “Company B,” which sources have identified to Washington Technology respectively as CACI and Science Applications International Corp.

When General Dynamics announced its bid for CSRA, the defense contractor cited an improving budget outlook for both defense and government IT spending that would translate to growth in larger contracting opportunities.

A combined CACI-CSRA entity would be an almost $10 billion-revenue business, similar to the scale of a combination of General Dynamics’ IT business with CSRA. Either combination would put it just behind the $10.6-billion Leidos, which became the largest government IT and services contractor through its merger with the former Lockheed Martin IT business in 2016.

The latest offer from CACI comes on the heels of its comments earlier in March to investors at a conference hosted by Raymond James that it did not feel the need to make a large scale-focused acquisition in light of General Dynamics’ move for CSRA.

CACI has made 67 acquisitions over its 56-year history and deals are the contractor’s primary method of capital deployment. The company's more recent large deals have included the $820 million acquisition of Six3 Systems in 2013 and the $550 million buy of the former L-3 National Security Solutions business in 2016.

CSRA is subject to a breakup fee of $204 million should it agree to an unsolicited superior proposal.