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Computer Sciences deal sputters
By James. H. Smith
November 22, 2005
At midday on November 21, shares in Computer Sciences Corporation (CSC)
had dropped over 12 percent following reports that Lockheed Martin
Corporation along with private equity firms Warburg Pincus, Texas Pacific
Group and Blackstone Group had halted plans to acquire the company. At
midday, CSC was trading at US$48.06.
As previously reported in this column, rumored acquisition price for CSC was
US$12 billion, based on a US$65 price per share.
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CSC had placed the US$65 per share price tag as a beginning point for
negotiations, allowing the Lockheed-led group due diligence access,
according to sources.
All parties remain mum over reports of the break-off of the deal.
Lockheed's interest stemmed from CSC's government computer-outsourcing
business, which accounts for one-third of CSC's sales.
Like other major US defense contractors, Lockheed Martin has kept an eye on
potential acquisition targets in the information technology market as the US
government proposes cuts in weapons budgets.
Even as the Lockheed-led takeover falters, CSC last week announced that it
has been awarded a contract, valued at about US$243 million if all options
are exercised, to continue supporting the US Department of Defense's Missile
Defense Agency (MDA) with scientific, engineering and technical assistance.
That strategy of diversifying the revenue streams of traditional defense
companies away from weapons was further demonstrated by the acquisition of
California-based Global Microwave Systems by Amex-listed Allied Defense
Group, Inc.
Terms of the cash and stock transaction deal were not announced. However,
the acquisition was financed in part through a draw on its acquisition line
of credit with private equity group Patriot Capital Funding, Inc.
Patriot Funding confirmed that it has closed a US$12 million financing under
its US$18 million acquisition line of credit for Allied Defense Group.
Allied Defense Group is a diversified international defense and security
firm which: develops and produces conventional medium caliber ammunition
marketed to defense departments worldwide; designs, produces and markets
sophisticated electronic and microwave security systems principally for
European and North American markets; manufactures battlefield effects
simulators and other training devices for the military; and designs and
produces state-of-the-art weather and navigation software, data, and systems
for commercial and military customers.
However, Crystal Leiderman, a spokesperson for Allied Defense told
InvestorIdeas.com that the move does not indicate the company's move away
from the company's munitions business in response to proposed cuts in the US
government's military budget. Rather, said Leiderman, "Our acquisition
strategy continues to be to acquire companies that complement both our
defense and electronic security businesses. Global Microwave Systems fits in
with our electronic security business."
Global Microwave Systems is a "great company," she added, maintaining that
Allied Defense would consider other acquisitions in the security sector
while concurrently maintaining a focus on the defense sector.
Takeover attempts have not been confined to the US defense market, if rumors
prove true concerning a potential acquisition of Paris-based
telecommunications equipment manufacturer Alcatel by French defense
contractor Thales.
Thales is an international electronics and systems group, serving defense,
aerospace, security and services markets.
Rumor is that Alcatel may make a GBP5 billion play for Thales in which the
French government holds a 31.3 percent stake. Alcatel already owns 9.5
percent of Thales, making Alcatel holder of the second-largest stake in
Thales.
While the "deal" may be only speculation, Alcatel has previously been
rumored to be eyeing Thales. And Alcatel is not the only suitor.
In March, EADS, parent of plane maker Airbus, sought to acquire Thales. That
attempt was derailed by opposition to the creation of a French-based
powerhouse from Germany and the UK Ministry of Defense.
In addition to what kind of deal any potential acquirer can make, any
possible sale will be predicated by the intentions of the French government,
Thales' largest stakeholder.
Disclaimer
James Smith is an independent columnist for this web site. James Smith may
hold long or short positions in any of the stocks mentioned in this article
and those positions can change at any moment.
InvestorIdeas.com Disclaimer:
www.InvestorIdeas.com/About/Disclaimer.asp, InvestorIdeas is not
affiliated or compensated by the companies mentioned in this article. James
Smith is a freelance writer. Nothing in the articles should be construed as
an offer or solicitation or recommendation to buy or sell any specific
products or securities. Past performance does not guarantee future results.
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