Business Context and Reporting Period
Science Applications International Corporation (SAIC) filed this Form 8-K on March 1, 2015, to disclose the entry into a Material Definitive Agreement. The filing details a merger agreement to acquire Scitor Holdings, Inc. (Scitor) and its subsidiaries.
Key Financial Metrics and Transaction Terms
- Transaction Value: Aggregate cash consideration of approximately $790 million, subject to working capital adjustments.
- Financing Structure: Funded via increased borrowings and cash on hand. SAIC has secured a firm financing commitment with no financing condition attached to the Merger Agreement.
- Debt Facilities: Commitment for a senior secured term loan "B" up to $670 million. If existing credit agreements are not amended, SAIC plans to refinance with a Term Loan A (up to $500 million), Term Loan B (up to $670 million), and a revolving credit facility (up to $200 million).
- Liquidity: SAIC intends to utilize up to $155 million of cash on hand to fund the transaction.
- Escrow Fund: A $40 million escrow fund will be established for SAIC's benefit to satisfy indemnification obligations, released in tranches at 15 and 36 months post-closing.
Material Changes and Transaction Mechanics
The primary material change is the execution of the Merger Agreement dated March 1, 2015. Upon closing, a wholly-owned subsidiary of SAIC will merge with Scitor, with Scitor surviving as a subsidiary of SAIC. The transaction includes a "no-shop" covenant prohibiting Scitor from soliciting alternative proposals. The filing does not provide comparative financial metrics (revenue, profit, margins) for the reporting period as this is a current report regarding a specific event rather than a periodic financial statement.
Outlook, Risks, and Contingencies
- Closing Timeline: The Merger is expected to close in May 2015.
- Conditions Precedent: Completion is subject to customary conditions, including the expiration of the waiting period under the Hart-Scott-Rodino Antitrust Improvements Act.
- Termination Rights: The agreement may be terminated by mutual consent, after June 29, 2015 (absent breach), if permanently enjoined by a governmental authority, or upon a material breach that is not cured within 30 days.
- Management Commentary: SAIC announced the merger via press release and scheduled a webcast conference call for March 2, 2015, to provide an overview to financial analysts.
Investor Verification Checklist
- Verify the final closing date and whether the May 2015 target is met.
- Confirm the final purchase price after working capital adjustments.
- Monitor the status of the Hart-Scott-Rodino antitrust review.
- Review the final terms of the amended Credit Agreement and the specific interest rates/fees associated with the new Term Loan facilities.
- Assess the impact of the $790 million cash outflow and increased debt load on SAIC's future liquidity and leverage ratios.