By Calvin Biesecker
DynCorp International, Inc., [DCP] yesterday said it has agreed to be acquired by the private equity firm Cerberus Capital Management, L.P., for $1.5 billion, including debt.
Terms of the deal permit DynCorp to pursue another buyer over the next four weeks and at anytime respond to unsolicited proposals. If DynCorp’s terminates the merger, it must pay Cerberus a $30 million fee and up to $12 million of the firm’s transaction expenses under specified circumstances, according to filing by DynCorp with the Securities Exchange Commission.
DynCorp, which expects to do about $3.5 billion in business in its fiscal year that ended on April 1, provides government services worldwide, with its largest two customers being the Defense and State Departments. The company has about $523 million in long-term debt.
The transaction is slated to close in the third or fourth quarter of 2010, subject to federal antitrust approvals and approval by the majority of shares of DynCorp’s common stock. Veritas Capital, which owns 35 percent of DynCorp’s shares, has already agreed to favor the transaction.
Once the deal closes, DynCorp shareholders will receive $17.55 in cash for each share of common stock they own, representing a 49 percent premium over the $11.75 closing price last Friday, and about 50 percent over the 90-day average closing price. Cerberus is providing equity financing and has received committed debt financing from Bank of America Merrill Lynch [BAC], Citigroup [C], Barclays Bank, and Deutsche Bank Securities. Each financial institution along with Evercore Partners also acted as a financial adviser to Cerberus.
Cerberus has several government services companies in its portfolio, including IAP Worldwide Services, which provides logistics, base operations, and professional support, and Tier 1 Group, a provider of weapons, tactical, and operational medicine training. The private equity firm also owns Freedom Group, which holds various companies in the firearms and ammunition markets such as Remington and Bushmaster.
Cerberus owns firms in a wide range of markets.
“This exciting news underscores our successful track record in the government services sector and furthers our goal of continuing to grow our portfolio in this are,” Timothy Price, Cerberus Managing Director, said in a statement.
William Ballhaus, DynCorp president and CEO, will remain with the company after the merger is complete.
Goldman Sachs served as DynCorp’s financial adviser.
Once the transaction closes, DynCorp will be a private company.
Hours after the deal announcement, a law firm that represents investors in merger-related shareholder lawsuits, said it is investigating whether members of DynCorp’s board of directors violated fiduciary duties and state law related to the pending acquisition by Cerberus. Robbins Umeda LLP say its investigation “concerns whether [the board] undertook a fair process to obtain fair consideration for all shareholders of DynCorp.”