General Dynamics Corp., the maker of Abrams tanks and nuclear submarines, is making a record bet on reinvigorating its information-technology business.
The U.S. defense contractor agreed to buy CSRA Inc. for about $6.8 billion to expand its computer-services offerings for government agencies and military customers. CSRA holders will receive $40.75 a share in cash, General Dynamics said in a statement Monday, a 32 percent premium over the closing price at the end of last week.
The acquisition will make General Dynamics the No. 2 provider of federal IT services, trailing only Leidos Holdings Inc. CSRA, which provides services such as cybersecurity and data analytics, gives General Dynamics more heft as defense spending rises under President Donald Trump and computer-technology contracts get bigger and more complex.
“What we’re doing with this transaction is taking our good GDIT business and making it better, stronger, a more viable competitor,” General Dynamics Chief Executive Officer Phebe Novakovic said on a conference call with analysts and investors. “It’s low risk. It’s got terrific return on invested capital and great cash flow.”
General Dynamics fell less than 1 percent to $211.75 at 1:09 p.m. in New York. CSRA surged 31 percent to $40.40.
Defense Budget
As defense outlays increase, General Dynamics’ government-services business should return to the levels of sales and growth that were typical before cuts begin in 2011, said Dan Johnson, chief of the company’s information systems and technology unit. He estimated the market’s value at $250 billion.
“It would appear that the market is starting to be populated with larger opportunities” requiring broader skill sets, he said on the conference call. “We think this is a marriage made in heaven to go after that marketplace.’’