Public offering would flex SAIC's market muscle

Merger and acquisition experts hailed Science Applications International Corp.'s announcement yesterday to conduct an initial public offering, and said the move will give the employee-owned company necessary cash for future acquisitions.

SAIC of San Diego plans to shed its employee ownership model and conduct an initial public offering in 2006, the company said Sept. 1.

Proceeds from the so-far unpriced IPO will be used to pay a special dividend to SAIC's stockholders, mostly employees. The IPO will allow the company to better use its cash to fund organic growth and make acquisitions, the company said.

"It will actually make the company more competitive in the whole consolidation of the government information technology arena," said William Farmer, managing director and head of the government IT and technical services investment banking group at Jefferies Quarterdeck in Washington. It also will free up resources to make SIAC more competitive and aggressive in pursuing its own acquisitions, he said.

Larry Davis, managing partner of the merger and acquisitions advisory firm Aronson Capital Partners LLC in Rockville, Md., said the company timed the initial public offering perfectly because industry valuations are at a relative high.

The initial public offering announcement came as no surprise, merger and acquisition experts said. In June, SAIC's leadership said that it was considering options to restructure the company because its employee-ownership structure had created a drain on resources.

"Over the past five years, we have used more than $2.5 billion of cash to balance our stock system," said SAIC Chairman and CEO Kenneth Dahlberg in a letter to employees posted on the company Web site yesterday.

On Oct. 7, SAIC's board of directors will set the stock price for a limited order trade cycle, probably the last one before the initial public offering.

The company also is conducting a capital restructuring that will create a holding company, SAIC Inc. The company's current shareholders will become shareholders of the holding company.

"It's basically a reward-and-reload type of transaction," said Bob Kipps, director of the aerospace, defense and government group with the Los Angeles-based investment banking and merger and acquisition advisory firm Houlihan Lokey Howard & Zukin. "They're rewarding existing shareholders with a special dividend and reloading for future growth opportunities."

In the capital restructuring, each outstanding share of the company's class A common stock will be converted into the right to receive two shares of class A preferred stock of SAIC Inc. Each outstanding share of SAIC class B common stock will be converted into the right to receive 40 shares of class A preferred stock of the new entity. SAIC will offer common stock in its initial public offering.

After the initial public offering, the company's existing shareholders will retain 80 percent to 90 percent of SAIC's capital stock and control all voting power, Dahlberg said in a video address to employees Sept. 2.

SAIC has about 42,400 workers and annual revenue of about $7.2 billion. The company ranks No. 3 on Washington Technology's 2005 Top 100 list, which measures federal contracting revenue.

Reader Comments

Please post your comments here. Comments are moderated, so they may not appear immediately after submitting. We will not post comments that we consider abusive or off-topic.

Please type the letters/numbers you see above

What is your e-mail address?

My e-mail address is:

Do you have a password?

Forgot your password? Click here
close

Trending

  • Dive into our Contract Award database

    In an exclusive for WT Insider members, we are collecting all of the contract awards we cover into a database that you can sort by contractor, agency, value and other parameters. You can also download it into a spreadsheet. Our databases track awards back to 2013. Read More

  • Navigating the trends and issues of 2016 Nick Wakeman

    In our latest WT Insider Report, we pull together our best advice, insights and reporting on the trends and issues that will shape the market in 2016 and beyond. Read More

contracts DB

Washington Technology Daily

Sign up for our newsletter.

I agree to this site's Privacy Policy.