Business Context and Reporting Period
Company: Science Applications International Corporation (SAIC)
Filing Type: Form 8-K (Current Report)
Date of Report: September 9, 2018
Event: Entry into a Material Definitive Agreement (Agreement and Plan of Merger) with Engility Holdings, Inc. ("Engility").
Key Financial Metrics and Transaction Terms
This filing details a merger transaction rather than periodic financial performance results. Key financial terms include:
- Exchange Ratio: 0.450 shares of SAIC common stock for each share of Engility common stock.
- Financing Commitment: SAIC secured a commitment letter from Citigroup Global Markets Inc. for a new seven-year senior secured $1.05 billion Term Loan B.
- Use of Proceeds: Repayment of Engility's existing credit facility and outstanding notes.
- Termination Fees:
- Engility to pay SAIC: $50,000,000 plus $10,000,000 in fixed expenses (Total: $60,000,000) under specific termination scenarios.
- SAIC to pay Engility: $100,000,000 plus $10,000,000 in fixed expenses (Total: $110,000,000) under specific termination scenarios.
- Board Composition: Post-merger SAIC board will expand to 11 members, including 2 Engility designees.
Note: The filing text does not provide specific revenue, profit, cash flow, margin, or debt figures for the reporting period.
Material Changes and Agreements
The primary material change is the execution of the Merger Agreement on September 9, 2018. Key structural changes include:
- Merger Structure: A wholly-owned subsidiary of SAIC (Raptors Merger Sub, Inc.) will merge with and into Engility, with Engility surviving as a wholly-owned subsidiary of SAIC.
- Equity Conversion: Outstanding Engility equity awards will convert to SAIC equity awards based on the exchange ratio; performance-based awards will convert to time-vesting restricted stock units.
- Voting Agreement: Birch Partners, L.P. (holding approx. 48.48% of Engility stock) entered a Voting Agreement to vote its shares in favor of the merger, subject to existing stockholder agreements.
Guidance, Outlook, Risks, and Contingencies
Conditions to Closing: The merger is subject to customary conditions, including stockholder approval from both SAIC and Engility, expiration of the Hart-Scott-Rodino waiting period, NYSE listing approval, and effectiveness of the Form S-4 registration statement.
Termination Rights: Either party may terminate if the merger is not consummated by June 10, 2019, if stockholder approval is not obtained, or if a law prohibits the merger. Specific termination rights exist if either board changes its recommendation or if a material breach occurs.
Risks and Uncertainties: The filing includes extensive forward-looking statements regarding risks such as:
- Failure to obtain stockholder approval or regulatory clearance.
- Integration challenges and failure to realize anticipated synergies or cost savings.
- Diversion of management attention from daily operations.
- Changes in U.S. government defense and intelligence budgets or procurement rules.
- Assumption of known and unknown liabilities of Engility.
- Potential impairment charges related to goodwill and intangible assets.
Important Facts for Investor Verification
- Verify the final terms and conditions in the definitive Joint Proxy Statement/Prospectus (Form S-4) to be filed with the SEC.
- Confirm the outcome of the stockholder votes required for both SAIC and Engility.
- Monitor the status of regulatory approvals, specifically the Hart-Scott-Rodino antitrust review.
- Review the specific covenants and financial requirements of the $1.05 billion Term Loan B commitment from Citigroup.
- Assess the impact of the termination fees ($60M for Engility, $110M for SAIC) on the balance sheet in the event of a deal failure.