Industry Week in Review – September 23, 2011
On September 23, as the government’s 2011 fiscal year end approaches, the Republican controlled House passed a continuing resolution (“CR”) aimed at preventing a government shutdown by funding operations for the first seven weeks of the new fiscal year. However, the bill was “put-aside” by the Democrat controlled Senate, disapproving of tying disaster relief funds to cuts in Democrat-backed programs. This move stops short of killing the deal, but leaves the debate open until as late as Monday. Although disaster relief was the main topic of debate, and could be left unfunded as soon as next Friday if a resolution is not reached, it looks as if Congress may also have eliminated the one expected silver lining defense contractors were looking for in this stop-gap measure.
Overseas Contingency Operations (“OCO”) funding appears to have been reduced by the 25% planned for FY2012, eliminating the possibility that the new CR would extend FY2011 OCO funding levels into FY2012. The shift represents a decrease from FY2011’s $157 billion run-rate to FY2012’s run-rate of $118 billion. While OCO represents roughly 60% of operations and maintenance spending, it also includes modest investment spending. If this CR is passed, contractors supporting combat operations will likely see some of the effect, but infrastructure firms are expected to see the greatest downside.
Notes on some big movers
Goodrich Corp. (Up 31.1%) – Despite multiple investigations announced concerning possible breaches of fiduciary responsibility, shares are up this week after United Technologies Corp. announced that they will acquire Goodrich for $127.5 per share, an approximate value of $18.4 billion.
Oshkosh Corporation (Down 19.3%) – shares are down this week amid a market downturn as union workers went on strike over job security, seniority, and health and medical issues. The union’s five-year contract is set to expire a week from Saturday.
Notes on some relevant transactions
General Dynamics to acquire Metro Machine Corp., a leading East Coast surface-ship repair company that supports the U.S. Navy fleet in Norfolk, Va. The Norfolk location will extend the reach of NASSCO’s ship-repair operations to a key East Coast naval port and will enhance General Dynamics’ ability to deliver cost-effective maintenance and repair services to the U.S. Navy. Terms of the deal were not disclosed.
United Technologies Corp. to acquire Goodrich Corp., a global supplier of systems and services to the aerospace and defense industry, for $127.5 per share, equating to a total enterprise value of roughly $18.4 billion. The acquisition further strengthens United Technologies position in the growing commercial aerospace market and enhances its ability to support its customers with more integrated systems.
CACI to acquire Advanced Programs Group, an Oracle Platinum Partner and leading provider of Oracle e-Business services in the federal market, for an undisclosed amount. The acquisition makes CACI one of the largest federal Oracle providers and the only Federal Shared Service Provider in both the financial and contract lifecycle management business areas. APG’s 2010 revenue was $41.9 million.