Business Context and Reporting Period
Science Applications International Corporation (SAIC) filed this Form 8-K on February 5, 2020, to disclose the entry into a Material Definitive Agreement. The filing details a strategic acquisition intended to expand SAIC's capabilities in federal IT services.
Key Financial Metrics and Transaction Details
- Transaction Value: Aggregate purchase price of $1.2 billion, subject to working capital adjustments and a post-closing true-up.
- Target Business: Unisys Federal, an operating unit providing infrastructure modernization, cloud migration, managed services, and IT-as-a-service to U.S. federal civilian agencies and the Department of Defense.
- Financing Structure:
- $600 million seven-year senior secured Term Loan B (incremental facility).
- $400 million eight-year senior unsecured bridge facility.
- Lender: Citigroup Global Markets Inc.
- Employee Impact: Approximately 2,000 employees are expected to transfer to SAIC.
- Operating Metrics: The filing text does not provide specific revenue, profit, cash flow, or margin figures for the target business or the combined entity.
Material Changes and Transaction Conditions
The primary material change is the agreement to acquire Unisys Federal. The transaction is subject to several closing conditions, including:
- Clearance under the Hart-Scott-Rodino Act.
- Delivery of audited 2019 year-end financial statements for the Business by Unisys.
- Satisfaction of customary representations, warranties, and covenants.
The closing is expected by the end of SAIC's first quarter of fiscal year 2021 (ending May 1, 2020). The agreement includes termination rights if the transaction does not close within six months of signing.
Outlook, Risks, and Unusual Items
- Transition Services: Unisys will provide transition services for up to one year post-closing at cost plus a 5% markup (10% if extended beyond one year).
- Intellectual Property: SAIC will acquire joint ownership of certain IP assets and receive licenses for patents and trademarks necessary to conduct the business.
- Liabilities: Unisys generally retains or indemnifies SAIC for pre-closing liabilities, while SAIC assumes obligations related to the Business post-closing.
- Risks: The transaction is contingent on regulatory approval and the successful delivery of financial statements. Failure to meet closing conditions within six months allows either party to terminate.
Investor Verification Checklist
- Verify the final purchase price after working capital adjustments and the post-closing true-up.
- Confirm the receipt of regulatory clearance under the Hart-Scott-Rodino Act.
- Review the audited 2019 financial statements of Unisys Federal to assess the quality of earnings and liabilities.
- Monitor the drawdown of the $1 billion financing commitment from Citibank.
- Assess the integration plan for the 2,000 transferring employees and the terms of the Transition Services Agreement.