General Dynamics Corp, maker of Gulfstream jets, tanks and US Navy ships is to buy US defence IT contractor CSRA Inc to strengthen its IT unit. The total value of the deal is around $9.6bn, with the equity portion valued at around $6.68bn. General Dynamics said it would also assume $2.8bn of CSRA debt.
Under the terms of the deal, the Virginia-based company is paying $40.75 cash per CSRA share, which represents a 32% premium to CSRA’s closing price on Friday.
General Dynamics’ IT business has grown to become its biggest earner and generated $8.9bn of revenue last year, which accounted for nearly 29% of total group revenue.
Phebe Novakovic, General Dynamics’ chairman and CEO commented: “The acquisition of CSRA represents a significant strategic step in expanding the capabilities and customer base of GDIT.
“We see substantial opportunities to provide cost-effective IT solutions and services to the Department of Defence, the intelligence community and federal civilian agencies. The combination enables GDIT to grow revenue and profits at an accelerated rate. It will allow us to deliver even more innovative, leading-edge solutions to our customers.”
CSRA provides IT services to the US government, including cyber security, data and analytics. The companies said that combining GDIT and CSRA will create a business with around $9.9bn in annual revenue.
General Dynamics expects the transaction to be accretive to its earnings per share and to free cash flow per share in 2019, and predicts estimated annual pre-tax cost savings of about 2% of the combined company’s revenue by 2020.
CSRA’s shares rose 31.4% to $40.50 in today’s pre-market trading.