Shareholder Seeks Seat To Force Sale of CACI

Shareholder Seeks Seat To Force Sale of CACI<@VM>Chairman of The Board<@VM>CACI Board Members:

J.P. "Jack" London

By Nick Wakeman

A dissatisfied shareholder is trying to win a seat on the board of directors of CACI International Inc., in his second attempt to force the sale of the Arlington, Va.-based company.

Alan Parsow, a former member of the CACI board who controls 5.1 percent of the company's shares, said the stock price has peaked and that the best way to unlock shareholder value is to sell the company.

Parsow told Washington Technology that the systems integrator has been approached by at least two companies interested in buying CACI, but that its board has been unresponsive. He declined to name the companies.

J.P. "Jack" London, the longtime CACI chairman and chief executive, strongly defended his board, but would not confirm that it has evaluated any offers.

"We have an extraordinarily qualified and capable board of directors. They are certainly experienced in the context of responding to any kind of offers," London said.

The company has a policy "that any and all such overtures coming from bona fide organizations will be brought to the full board's attention," said London. However, the board does not "make public disclosures or discuss these kind of matters publicly," he said.

And because the company is not looking actively for a buyer, the board has the discretion to decide how to respond to offers, London said.

CACI, which is on track to have more than $400 million in revenue this year compared to $326 million in 1998, provides information technology products and services in areas such as systems development and integration, software and simulation development and products, and information assurance services.

About half of the company's revenue comes from the Department of Defense, 30 percent from civilian agencies and 20 percent from commercial customers.

"If an offer was deemed to have merit and be significant with a pre-emptive premium, I'm sure this board would examine it very, very carefully," London said. "The allegations that we would never entertain an offer are not accurate."

Sources said there is a history of bad blood between London and Parsow. Neither London nor Parsow would comment on their relationship.

Parsow said he wants to win a spot on the board for himself and at least five others, whom he said support his plans, so that he will have a majority on the 10-person board.

"I don't believe that the current board has the backing of the majority of stockholders," Parsow said.

CACI will elect board members at its annual meeting in November. London would not comment on whether he would oppose Parsow's nomination.

'"We have a process for making nominations to the board," he said.

The nominations will be announced in CACI's proxy statement, which is released about two months before the annual meeting.

Parsow served from 1993 until 1997 as a CACI board member, but was not renominated for a seat. Parsow won his original seat after a 1990 lawsuit filed against CACI by current board member Larry Pfirman was settled, opening up spots for new directors. Parsow began investing in CACI in the mid-1980s.

During his tenure on the board, Parsow pushed for CACI to find a buyer, according to a source. Parsow and London often clashed because Parsow wanted a quick return through a sale, while London was focused on building the business, the source said. In 1990, when London became chairman, CACI's revenue was $148 million.

"They [London and Parsow] are dramatically different people," the source said. "I think a lot of this is just personal."

By 1997, Parsow said he had sold a significant portion of his stock. But by the end of 1998, "I had re-established a fairly large position," he said.

According to his May 26 filing with the Securities and Exchange Commission, Parsow and two investment partnerships he manages own 556,300 shares of CACI, or 5.1 percent.

Parsow's filing has fueled speculation that CACI may become a takeover target. The company's stock price has responded accordingly, rising from $18.06 a share May 25 to $22.75 July 9.

The increase prompted one securities analyst, Michael Coady of Sidoti & Co. of New York, to change his recommendation on CACI from a buy to a neutral.

"It has nothing to do with the fundamentals of the company. I just don't think there is much appreciation left in the stock," he said.

According to Parsow, the best way to tap into the company's value that is not reflected in the price per share is to find a buyer.

"There is a consolidation going on in the industry, and there are few players of CACI's size left," he said.

Analysts who follow CACI are split over whether a sale is the best course of action at this time.

Brace Brooks, an analyst with the investment firm Johnston, Lemon & Co. of Washington, estimated the premium for CACI probably would be around 20 percent above the trading price of the share.

The choice for shareholders is whether to take the quick return or look to the long term, he said. "I think they would get a better return by keeping the company independent," Brooks said.

Thomas Meagher, a principal with the investment banking firm Boles, Knop & Co. of Middleburg, Va., said there would "definitely be parties interested in CACI, but I don't see them getting a one-times-revenue multiple."

Without getting an offer that high, Meagher doubted CACI's board would go for a sale.

"They are one of the more conservative boards we follow," he said.

It is too early to tell if Parsow will be successful in his bid to win control of the board, said Bill Loomis, an analyst with Legg Mason Inc. of Baltimore. But CACI's long-term future may hinge on finding a suitor, he said.

The company has made positive strides to get into higher margin markets such as information assurance and network management with the acquisition of QuesTech Inc. of Falls Church, Va., in November 1998 and Government Systems Inc. of Chantilly, Va., in September 1997, analysts said.

The acquisitions have helped to improve CACI's financial performance. Overall revenue for the first three quarters of fiscal year 1999, which ended March 31, was $315.7 million, compared to $235.1 million for the same period last year. Net income during that time rose 20 percent to $10.1 million, compared to $8.4 million in 1998.

"You can't say they haven't been doing the right things," said John Allen of Quarterdeck Investment Partners of Los Angeles, an investment banking firm.

But Loomis said: "If they can't keep making good niche acquisitions, they will have to get bought out."

London said his growth strategy continues to include acquisitions. "We are pursuing acquisitions very aggressively," he said.

London also pointed out the board is very knowledgeable about making acquisitions. Board members include John Toups, who was chairman and CEO of PRC Inc. when it was sold to the Emhart Corp., and William Snyder, who was chairman and CEO of Geico Corp. when it was sold to Berkshire Hathaway Inc.

"If you look at their credentials, you'll see that these individuals have been involved in significant transactions," London said. CACI International Inc.

Founded: 1962

J.P. "Jack" London, chairman
and CEO

1998 Revenue: $326 million

Capabilities: Computer systems, software, simulation, network management and information assurance

Employees: 4,200

Headquarters: Arlington, Va.
90 offices in Europe and North America

www.caci.comJ.P. "Jack" London: Chairman

Richard Leatherwood: Corporate director, Dominion Resources Inc., Virginia Power and Dominion Energy Inc. Former president and CEO, CSX Equipment Group. Former vice chairman, Chessie System Railroads and Seaboard System Railroad.
Former president and CEO, Texas Gas Resources.

Larry Pfirman: Private investor.
Founder, chairman and CEO, Tara Lee Sportswear Inc.
Founder and chairman, Spectro Knit Manufacturing Co.

Warren Phillips: Executive vice chairman, CEO and secretary/treasurer, Moscow/Maryland Inc.
Former CEO, International Initiative Inc.
Professor and senior posts, University of Maryland.

Charles Revoile: Private investor. Legal and business consultant.
Senior vice president, general counsel and secretary, CACI (retired 1992).

Glenn Ricart: Senior vice president and chief technology officer, Novell, Inc.

Vincent Salvatori: Founder and former chairman, president and CEO, QuesTech Inc.

William Snyder: Chairman of Southern Heritage Insurance Co., Merastar Insurance Co., Southern Heritage Holdings Inc., and Merastar Corp.
Former chairman and CEO, Geico Corp.

Richard Sullivan: President and CEO, Cargill Detroit Corp.

John Toups: Outside director, Halifax Corp., NVR, Inc., Telepad Corp. and Thermatrix Inc.
Former chairman, president and CEO, PRC Inc.

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