- Creates the second largest independent
technology integrator in government services, with $6.5 billion of
pro-forma last 12 months’ revenue.
- Accelerates both companies’ long-term
strategies, creating market sub-segment scale in strategic business
areas of national interest, to include space and intelligence.
- $2.5 billion all-stock transaction,
including the assumption of $900 million of Engility’s debt; $2.25
billion net of the present value of tax assets.
- More than $375 million in pro-forma
annual free cash flow, aided by substantial tax attributes,
enhances capital deployment flexibility.
- Accretive to cash EPS driven by
expected net cost synergies of $75 million, greater customer
access, and more competitive and differentiated solutions.
- Transaction will deliver a broader
range of innovative services and solutions to our customers and
expand employee career opportunities.
Science Applications International Corp. (NYSE: SAIC) and
Engility Holdings Inc., (NYSE: EGL) today announced that they have
entered into a definitive agreement under which SAIC will acquire
Engility in an all-stock transaction valued at $2.5 billion ($2.25
billion net of the present value of tax assets), creating the
second largest independent technology integrator in government
services with $6.5 billion of pro-forma last 12 months’
revenue.
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The combination of these two complementary businesses will
accelerate SAIC’s growth strategy into key markets, enhance its
competitive position and provide significant financial
benefits.
“The highly complementary portfolios, combined with our similar
cultures, operating models, and histories, make this transaction a
compelling combination that enhances the value proposition for our
customers, employees, and shareholders,” said SAIC CEO Tony Moraco.
“We look forward to welcoming the Engility team into SAIC, as
together we create a market leader in government services with more
than 23,000 employees.”
The transaction will create market sub-segment scale in
strategic business areas of national interest, such as defense,
federal civilian agencies, intelligence, and space. In addition, it
expands the capabilities of both companies, bringing additional
systems engineering, mission, and IT capabilities to a broader base
of customers.
“Engility’s market-leading expertise
in next-generation systems engineering and integration
services, particularly among space, federal, and intelligence
customers, will augment SAIC’s strong mission, engineering and
enterprise IT offerings to create a more comprehensive suite
of capabilities serving a broader set of customers,” said
Engility Chairman, CEO and President Lynn Dugle. “The combined
capabilities of the two companies will have the capacity and
differentiated solutions that can best meet our customers’ demands
and take advantage of improved market conditions.”
The combination will enhance shareholder value creation, with
greater customer access and more competitive and differentiated
solutions, supported by more than $375 million in pro-forma annual
free cash flow to enhance capital deployment flexibility and $150
million of expected annual gross cost synergies ($75 million of
expected annual net cost synergies, after consideration of the
pro-forma company’s cost type contract mix). Upon closing, SAIC
shareholders will own approximately 72% and Engility shareholders
will own approximately 28% of the combined company on a pro forma,
fully diluted basis.
Transaction Terms and Financing
Under the terms of the merger agreement, Engility stockholders
will receive a fixed exchange ratio of 0.450 shares of SAIC common
stock for each share of Engility stock in an all-stock transaction.
Based on an SAIC per share closing price of $89.86 on September 7,
2018, the transaction is valued at $40.44 per share of Engility
common stock or $2.5 billion in the aggregate, including the
repayment of $900 million in Engility’s debt.
SAIC has obtained a financing commitment letter from Citigroup
Global Markets Inc. for a new seven-year senior secured $1.05
billion term loan facility under our existing credit agreement. The
proceeds will be used to repay Engility’s existing debt and
associated fees. SAIC expects no immediate change to its quarterly
cash dividend as a result of this transaction.
The transaction is expected to close by the end of the fiscal
fourth quarter ending February 1, 2019, following customary closing
conditions, including regulatory and SAIC and Engility shareholder
approvals. The transaction has been unanimously approved by both
Boards of Directors. The businesses will continue to operate
separately until the transaction closes.
Governance and Management
The combined company will retain the SAIC name and continue to
be headquartered in Reston, Virginia. Following closing, Tony
Moraco will continue as CEO and as an SAIC Board member. SAIC will
expand its board to include two additional members from Engility’s
Board of Directors.
Citigroup Global Markets Inc. acted as lead financial advisor
and Stone Key Partners LLC acted as co-financial advisor to SAIC.
Morrison & Foerster LLP served as legal counsel. Arnold &
Porter provided financing legal counsel. Renaissance Strategic
Advisors Ltd. provided business due diligence and strategy support
services.
Guggenheim Securities served as lead financial advisor to
Engility, and Weil, Gotshal, & Manges LLP and Bass, Berry and
Sims PLC acted as legal counsel. Fairmont Consulting Group provided
business due diligence services. Morgan Stanley & Co. LLC also
provided financial advisory services to Engility.
Conference Call and Webcast Information
SAIC and Engility management will hold a conference call at 8
a.m. eastern time on September 10, 2018 to review the transaction.
The conference call will be webcast simultaneously to the public
through a link on the Investor Relations section of SAIC’s website
(http://investors.saic.com) or Engility’s website at
www.Engility.com
After the call concludes, an audio replay can be accessed on
both companies’ Investor Relations websites or by dialing
1-888-203-1112 (toll-free U.S.) or 1-719-457-0820
(International/Local) and entering passcode 611385.
No Offer or Solicitation
This communication is for informational purposes only and not
intended to and does not constitute an offer to subscribe for, buy
or sell, the solicitation of an offer to subscribe for, buy or sell
or an invitation to subscribe for, buy or sell any securities or
the solicitation of any vote or approval in any jurisdiction
pursuant to or in connection with the proposed transaction or
otherwise, nor shall there be any sale, issuance or transfer of
securities in any jurisdiction in contravention of applicable law.
No offer of securities shall be made except by means of a
prospectus meeting the requirements of Section 10 of the
Securities Act of 1933, as amended, and otherwise in accordance
with applicable law.
Additional Information and Where to Find It
In connection with the proposed acquisition of Engility, SAIC
will file with the SEC a registration statement on Form S-4 to
register the shares of SAIC common stock to be issued in connection
with the merger. The registration statement will include a joint
proxy statement/prospectus which will be sent to the shareholders
of SAIC and Engility seeking their approval of the proposed
transaction.
WE URGE INVESTORS AND SECURITY HOLDERS TO READ THE REGISTRATION
STATEMENT ON FORM S-4, THE JOINT PROXY STATEMENT/PROSPECTUS
INCLUDED WITHIN THE REGISTRATION STATEMENT ON FORM S-4 AND ANY
OTHER RELEVANT DOCUMENTS FILED OR TO BE FILED WITH THE SEC IN
CONNECTION WITH THE PROPOSED TRANSACTION BECAUSE THESE DOCUMENTS DO
AND WILL CONTAIN IMPORTANT INFORMATION ABOUT SAIC, ENGILITY, AND
THE PROPOSED TRANSACTION.
Investors and security holders may obtain copies of these
documents free of charge through the website maintained by the SEC
at www.sec.gov or from SAIC at its website, www.saic.com, or from
Engility at its website, www.engility.com.
Participants in Solicitation
SAIC, Engility, and their respective directors, executive
officers, and other employees may be deemed to be participants in
the solicitation of proxies from the stockholders of SAIC and
Engility in connection with the proposed transaction. Information
about SAIC’s executive officers and directors is set forth in its
Annual Report on Form 10-K, which was filed with the SEC on March
29, 2018 and its proxy statement for its 2018 annual meeting of
stockholders, which was filed with the SEC on April 25, 2018.
Information about Engility’s executive officers and directors is
set forth in its Annual Report on Form 10-K, which was filed with
the SEC on March 2, 2018, and the proxy statement for its 2017
annual meeting of stockholders, which was filed with the SEC on
April 13, 2018. Investors may obtain more detailed information
regarding the direct and indirect interests of SAIC, Engility, and
their respective executive officers and directors in the
transaction by reading the preliminary and definitive joint proxy
statement/prospectus regarding the transaction, which will be filed
with the SEC.
Forward-Looking Statements
Certain statements in this written communication contain or are
based on “forward-looking” information within the meaning of the
Private Securities Litigation Reform Act of 1995 that involves
risks and uncertainties concerning the proposed transaction between
SAIC and Engility, SAIC’s and Engility’s expected financial
performance, and SAIC’s and Engility’s strategic and operational
plans. In some cases, you can identify forward-looking statements
by words such as “expects,” “intends,” “plans,” “anticipates,”
“believes,” “estimates,” and similar words or phrases.
Forward-looking statements in this written communication include,
among others, statements regarding benefits of the proposed
acquisition (including anticipated future financial operating
performance and results), estimates of future revenues, operating
income, earnings, earnings per share, charges, backlog, outstanding
shares and cash flows, as well as statements about future
dividends, share repurchases and other capital deployment plans.
These statements reflect our belief and assumptions as to future
events that may not prove to be accurate. Actual performance and
results may differ materially from the forward-looking statements
made in this written communication depending on a variety of
factors, including: the possibility that the transaction will not
close or that the closing may be delayed; the possibility that SAIC
or Engility may be unable to obtain stockholder approval as
required for the transaction or that the other conditions to the
closing of the transaction may not be satisfied; the risk that
Engility will not be integrated successfully into SAIC following
the consummation of the acquisition and the risk that revenue
opportunities, cost savings, synergies and other anticipated
benefits from the merger may not be fully realized or may take
longer to realize than expected, diversion of management’s
attention from normal daily operations of the business and the
challenges of managing larger and more widespread operations
resulting from the acquisition, difficulties in entering markets in
which we have previously had limited direct prior experience, the
potential loss of customers and other business partners following
announcement of the acquisition, our ability to obtain financing on
anticipated terms, compliance with new bank financial and other
covenants, assumption of the known and unknown liabilities of the
acquired company, recordation of goodwill and nonamortizable
intangible assets subject to regular impairment testing and
potential impairment charges, incurrence of amortization expenses
related to certain intangible assets, assumption that we will enjoy
material future tax benefits acquired in connection with the
acquisition, developments in the U.S. government defense and
intelligence community budgets, including budget reductions,
implementation of spending cuts (sequestration) or changes in
budgetary priorities; delays in the U.S. government budget process
or approval to raise the U.S. debt ceiling; delays in the U.S.
government contract procurement process or the award of contracts;
delays or loss of contracts as result of competitor protests;
changes in U.S. government procurement rules, regulations and
practices; our compliance with various U.S. government and other
government procurement rules and regulations; governmental reviews,
audits and investigations of our company; our ability to
effectively compete and win contracts with the U.S. government and
other customers; our ability to attract, train and retain skilled
employees, including our management team, and to retain and obtain
security clearances for our employees; our ability to accurately
estimate costs associated with our firm-fixed-price and other
contracts; cybersecurity, data security or other security threats,
systems failures or other disruptions of our business; resolution
of legal and other disputes with our customers and others or legal
or regulatory compliance issues, including in relation to the
transaction; the occurrence of any event, change or other
circumstances that could give rise to the termination of the
transaction agreement; our ability to effectively deploy capital
and make investments in our business; our ability to maintain
relationships with prime contractors, subcontractors and joint
venture partners; our ability to manage performance and other risks
related to customer contracts; the adequacy of our insurance
programs designed to protect us from significant product or other
liability claims; our ability to declare future dividends based on
our earnings, financial condition, capital requirements and other
factors, including compliance with applicable laws and contractual
agreements; and our ability to execute our business plan and
long-term management initiatives effectively and to overcome these
and other known and unknown risks that we face. These are only some
of the factors that may affect the forward-looking statements
contained in this written communication. You should be aware that
new factors may emerge from time to time and it is not possible for
us to identify all such factors, nor can we predict the impact of
each such factor on the proposed transaction or the combined
company. For further information concerning risks and uncertainties
associated with our business, please refer to the filings on Form
10-K, 10-Q and 8-K that we or Engility make from time to time with
the SEC, including the “Risk Factors,” “Management’s Discussion and
Analysis of Financial Condition and Results of Operations” and
“Legal Proceedings” sections of our and Engility’ Annual Report on
Form 10-K which may be viewed or obtained through the Investor
Relations section of our web site at www.saic.com or Engility’s web
site at www.engility.com.
All information in this written communication is as of the date
hereof. SAIC and Engility expressly disclaims any duty to update
any forward-looking statement provided in this written
communication to reflect subsequent events, actual results or
changes in SAIC’s or Engility’s expectations. SAIC and Engility
also disclaims any duty to comment upon or correct information that
may be contained in reports published by investment analysts or
others.
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version on businesswire.com: https://www.businesswire.com/news/home/20180910005294/en/
SAIC Media Contact:Lauren Presti,
703-676-8982lauren.a.presti@saic.comorSAIC Investor
Contact:Shane Canestra,
703-676-2720shane.p.canestra@saic.comorEngility Media
Contact:Scott Fazekas,
703-984-5068scott.fazekas@engility.comorEngility Investor
Contact:Dave Spille, 703-984-6120dave.spille@engility.com
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