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Mixed signals from Wall Street
By James. H. Smith
November 16th, 2005
After three years of aggressive defense spending, investors have become
resigned to the Pentagon scaling back its more than US$400 billion annual
budget.
But that doesn't mean everyone is beating a retreat from the lucrative
defense sector. On the other hand, the decreased spending has not gone
unnoticed on Wall Street.
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The previous week has seen a mixed bag of deals, potential transactions and
at least one surprise in the US defense sector.
The big surprise was the postponement of an initial public offering (IPO) of
Global Secure Corporation.
While other companies focused on the homeland security market have prospered
in the wake of the September 11, 2001 terrorist attacks in the US -- for
example, Anteon International Corporation and SRA International Inc, both of
which went public in spring 2002, less than a year after the 11 September
2001 terrorist attacks in the US -- investors were not keen to take up the
Global Secure deal.
Anteon and SRA have more than doubled their stock prices, on a
split-adjusted basis, since their debuts.
In fact, SRA, a provider of information technology services and solutions to
the federal government, announced on November 2 that it completed the
acquisition of Spectrum Solutions Group, a privately-held provider of
enterprise solutions to the federal government.
Spectrum has customers throughout the US government, including the
Departments of Homeland Security and Health and Human Services
Underwriters of the Global Secure offering -- Morgan Keegan & Co, Jefferies
& Co and Thomas Weisel Partners -- which still plan to launch the IPO, cut
the expected price for the company's pending IPO to US$6.50 per share from
an initial pricing estimate of US$8-10 per share, according to an amended
Form S-1 filed with the US Securities and Exchange Commission (SEC).
Global Secure plans to offer 8.25 million common shares, including 696,000
shares on behalf of selling holders.
Global Secure was founded in 2003. With early venture money from Sky Capital
Enterprises in New York, Global Secure bought three small companies that
year: a maker of a self-contained breathing device, a gas-mask maker and a
company that provides training in the handling of hazardous material spills
and cleanup.
In 2004 the company raised an additional US$27.5 million in venture
financing for acquisitions.
On the plus side, shares of Computer Sciences Corporation (CSC)
increased 4% on Monday following a newspaper report that a defense
contractor and three investment firms might buy the computer services
company for US$12 billion, or US$65 a share.
Unconfirmed reports are that CSC had agreed on the price for a potential
break-up and sale of the company, with government business going to Lockheed
Martin Corporation while the company's commercial business would go to the
private-equity firms Warburg Pincus, Texas Pacific Group and Blackstone
Group.
About a third of CSC's revenue comes from work it does providing computer
services and consulting for the US military, CIA, FBI and other federal
agencies.
Other customers also include Ford Motor Co, SAS Group and the UK's National
Health Service.
HS3 Technologies Inc. announced on November 9 the acquisition of ip-Colo Inc
(IPC), an advanced wireless technologies provider, in a reverse merger.
HS3 said the acquisition reflects management's plan to seek new
opportunities in the growing market for integrated broadband internet
solutions for rural America. IPC offers advanced wireless technologies,
integrated with high-speed Internet via satellite, to provide real-time
security and monitoring solutions for the homeland defense sector, oil and
gas industry, hotels and other industries.
According to Mark Lana, chief executive officer of HS3, the acquisition
positions HS3 to enter the real-time security and monitoring business as
well as to provide high-speed Internet access via satellite to businesses
and industries currently unable to have cost-efficient and reliable access
to such services.
HS3 provides proprietary homeland security surveillance products that
broadcast real-time video and data on the new satellite Ka-band.
The move by a small company like HS3 confirms that companies of all sizes
are spreading their risks.
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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