Public offering would flex SAIC's market muscle
- By Roseanne Gerin
- Sep 02, 2005
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.