Will General Dynamics succeed in acquiring CSRA?

Nuclear submarine maker General Dynamics’ (GD) proposal to take over CSRA Inc. (CSRA) is not going as smoothly as it hoped for.  The $6.8 billion deal hit a speed bump after CACI International intended to merge with CSRA in an attempt to knock General Dynamics out of the game.

Currently, CSRA, a provider of IT and professional services, stands as an attractive possession. Recently, the company had bagged several major contracts, including the $500 million cloud computing contract from Defense Department and $2.4 billion tech contract from the National Security Agency.

These factors make CSRA more valuable, urging CACI to battle with General Dynamics. CACI, which jumped into the scene after General Dynamics, has rolled out an offer of $44 per share in cash and stock, totaling $7.2 billion. This surpassed General Dynamics’ bid of $40.75 per share in cash and stock. Another benefit for the shareholders under the CACI’s proposal is that they would own 55% of the combined entity.

Since Donald Trump’s administration has been frequently mentioning about increasing defense spending and reviving the military, General Dynamics is using this opportunity and stays determinant with its plan to grab CSRA. In fact, the company has sweetened its previous takeover value to $41.25 per share in cash, up from $40.75, bringing the total value to $9.7 billion, including debt. Despite the rise, the weapon maker’s offer is much lower than that of CACI.

The $6.8 billion deal hit a speed bump after CACI International intended to merge with CSRA in an attempt to knock General Dynamics out of the game.

General Dynamics believes this acquisition will help it to provide lower cost internet technology solutions. Though the price put forward by General Dynamics is lesser than CACI, the aircraft maker looks better in comparison. In 2017, General Dynamics’ top line stood at $31 billion. On the other hand, CACI reported total revenue of just $4.3 billion and targets revenue to be about $4.5 billion for the current year. CSRA reported revenues of $4.9 billion in 2017.

Based on this, it can be said that a deal between CACI and CSRA would be a merger of equals, and an actual acquisition would be between General Dynamics and CSRA.