Aerospace and defense company General Dynamics (GD 208.24, -3.86, -1.8%) has spied a growth opportunity in CSRA (CSRA 40.50, +9.68, +31.4%), an IT solutions company with which it competes, and it is aiming to capture that opportunity with an offer to acquire CSRA for approximately $9.6 billion or $40.75 per share in cash.
The offer includes the assumption of $2.8 billion in CSRA debt and represents a 32% premium over Friday's closing stock price for CSRA.
The IT unit of General Dynamics ("GDIT") runs complementary operations across the federal IT market, including major IT infrastructure programs, IT services, cyber protection services, training, and professional services.
CSRA's industry-leading margins were appealing to General Dynamics, which said it sees "...substantial opportunities to provide cost-effective IT solutions and services to the Department of Defense, the intelligence community and federal civilian agencies."
The combination of CSRA with GDIT would create a business with estimated revenue of $9.9 billion for 2018, which would make the unit the second-largest player in the consolidating federal IT market, trailing only Leidos (LDOS 63.59, +0.97, +1.5%). Other competitors in the space include the likes of Booz Allen (BAH 37.22, +0.88, +2.4%), CACI International (CACI 147.60, +3.65, +2.5%), and Science Applications International Corp. (SAIC 70.51, +1.56, +2.3%).
General Dynamics has indicated that it expects the acquisition of CSRA to be accretive to GAAP earnings per share and to free cash flow per share in 2019.
The deal, which has been unanimously approved by the Board of Directors of both companies, is expected to be completed in the first half of 2018 pending the necessary shareholder and regulatory approvals.
Thus far, it appears that shareholders like the chances of this transaction getting completed. Shares of CSRA have closed the gap between Friday's closing price and the offer price in short order.