General Dynamics (NYSE: GD) has entered into an agreement to acquireCSRA Inc. (NYSE: CSRA) for $40.75 per share or a total of $9.6 billion, including the assumption of CSRA’s $2.8 billion debt, overall a total of $6.8 billion
CSRA shares jumped 31.3 percent on Monday.
The merger of the two companies will create a stronger and strategic step in high-tech IT solutions to Government Technology services market. The acquisition will also position General Dynamics to become the second largest federal IT services, just behind Leidos Holdings.
The merger will also bolster General Dynamics as the Pentagon is set to announce President Donald Trump’s military spending budget, which is expected to increase, leading to more defense contracts.
General Dynamic has missed seven straight quarters of revenue estimates, but Dan Johnson, chief of the company’s information systems and technology unit, says its business will return to sales and growth where it was before cuts began in 2011.
“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.” said Phebe Novakovic, chairman and chief executive officer of General Dynamics.
General Dynamics expects the transaction to be accretive to GAAP earnings per share and free cash flow per share in 2019. The company expects to generate annual pre-tax cost savings of approximately 2 percent of the combined company’s revenue by 2020.
“Our combination with General Dynamics represents an excellent outcome for CSRA’s stockholders, employees and customers. It builds on strong shared values, culture and a passion for serving our customers’ missions.” said Larry Prior, chief executive officer and president of CSRA.
The transaction is expected to close in the first half of 2018.