Week in Review

Industry Week in Review – December 30, 2011

This week, the U.S. State Department announced a $29.4 billion sale of Boeing-made F-15 fighter jets to Saudi Arabia under the Foreign Military Sales program. The agreement includes 84 new aircraft, the modernization of 70 existing aircraft, as well as missiles, spare parts, training, maintenance and logistics. White House spokesman Joshua Earnest said the sale reinforces “the strong and enduring relationship between the United States and Saudi Arabia, and demonstrates the U.S. commitment to a strong Saudi defense capability as a key component to regional security.” According to a recent report from the Congressional Research Service, Saudi Arabia has remained one of the top three purchasers of U.S. defense articles and services since 2003.

After more than two years of delays, Russia delivers its nuclear-powered attack submarine, Nerpa, to the Indian military under a 10-year lease program. The lease has angered India’s arch-rival Pakistan and resulted in retaliation threats. Nerpa will be the first nuclear-powered submarine to be operated by India in nearly two decades since its last Russian-borrowed vessel was decommissioned in 1991. Russia supplies 70 percent of India’s military hardware.

Big Movers

Magellan Aerospace Corp. (Up 10.8%) – Shares are up this week after the company announced an agreement to deliver aluminum and titanium components to GKN Aerospace. The contract extension is projected to generate revenues in excess of £200 million (~$310 million) through December 2017.

Computer Sciences Corporation (Down 10.5%) – Shares are down this week after the company warned it may write down a $1.5 billion contract with Britain’s National Health Service. Implied volatility has increased as the company narrows its search for an outsider to be its CEO.

Relevant Transactions

Raytheon acquired Henggeler Computer Consultants, a cybersecurity and software engineer firm. The acquisition expands Raytheon’s capabilities to serve the cybersecurity, enterprise architecture and systems engineering needs of customers in the intelligence community as well as in the Department of Defense. Terms of the deal were not disclosed.

Click here to review comparable company analysis.

Industry Week in Review – September 2, 2011

As he bade farewell to the military Wednesday and prepares to take over as the CIA Chief, former United Stated Army, four–star general David Patraeus expressed concern that further defense budget cuts could undermine the military force he helped to shape and jeopardize the U.S. military’s ability to fight insurgencies. But, as treasury yields continue to head south and the U.S. economy fails to add jobs for the first time in almost a year this month, fears of another recession grow, precipitating a drop in all 10 sectors of the S&P 500 and all 30 of the Dow components. Such fiscal pressures and simultaneous ground wars have prompted calls to resume more conventional training and move away from Patraeus’ counterinsurgency approach, however, the general emphasized that amid “difficult” budget decisions it is imperative to build a force “that maintains the versatility and flexibility that [has] been developed [over] the past decade in particular.” As investors wait for congressional outcomes to calm market volatility, it appears the military will have to wait and do the same.

Notes on some big movers

SAIC, Inc. (Down 10.4%) – Shares are down this week after CEO Walt Havenstein, announced “disappointing” 2Q2011 results. Quarterly revenue was down 6.0% this quarter to $2.6B, operating income fell to 8.1% of revenue from 9.9% last quarter, and diluted EPS dropped $0.10 to $0.32.

Esterline Technologies Corp. (Down 9.2%) – Shares are down this week after the aerospace and defense supplier reported adjusted earnings in 2011 of less than $4.55 per share well below analysts’ estimates of $5.07 per share.

Notes on some relevant transactions

CSC acquired Maricom Systems, a provider of business intelligence and data management solutions to support mission-critical health IT systems. The acquisition expands CSC’s support of the U.S. Department of Health and Human Services’ efforts to implement IT improvements in the Patient Protection and Affordable Care Act. The deal also enhances CSC’s capabilities in the areas of healthcare informatics and data management. KippsDeSanto acted as the sole financial advisor to Maricom, terms of the deal were not disclosed.

IBM to acquire Algorithmics, a provider of risk solutions, analytics and advisory services to financial organizations and insurance businesses for $387M. The acquisition expands IBM’s analytic practices in the financial services industry and enhances IBM’s Business Analytics and Optimization capabilities.

IBM to acquire i2 Limited, a provider of intelligence analytics for crime and fraud prevention efforts based in Cambridge, UK. The acquisition accelerates its business analytics initiatives and helps clients in the public and private sectors address crime, fraud, and security threats. Terms of the deal were not disclosed.

Accelera Solutions, Inc. acquired ITS Group, Inc., an IT solutions provider specializing in virtualization solutions focused on cloud computing, desktop, application, and server virtualization. The strategic acquisition is expected to help Accelera become a leading partner in the deployment of Microsoft’s Systems Management and Messaging technologies and significantly expand its Microsoft offerings.

The Gores Group, LLC enters into asset purchase agreement with Point Black Solutions, Inc., a leader in the field of protective body armor used by military, law enforcement, and security and corrections personnel around the world. The agreement is intended to rectify the company after it filed for Chapter 11 in April 2010.

Click here to view the comparable company analysis.