Week in Review

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.

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Industry Week in Review – July 22, 2011

A debt ceiling agreement remained elusive this week, with the Senate rejecting the House’s “Cut, Cap and Balance” Plan on Friday. Nevertheless, President Obama and House Speaker Boehner seemed to be moving closer toward a deficit reduction deal cutting as much as $3 trillion in spending coupled with revenues of $1 trillion from tax code overhauls. The potential programs to see cuts remain unclear as the deadline for a deal draws closer, creating further uncertainty in the market. Other proposals on the table include Senators Harry Reid and Mitch McConnell’s incremental raise plan and the Gang of Six plan to cut the deficit by $3.7 trillion including $1 trillion in revenue increases.

Notes on some big movers:

Textron (Up 13.5%) – Shares were up for the week following strong second quarter earnings that exceeded Wall Street expectations.  Net income rose to $90 million, or $0.29 per share, beating analyst expectations of $0.24 per share. Revenue rose 12.2% to $2.48 billion, falling short of Wall Street revenue estimate of $2.83 billion.

Orbital Sciences Corp (Up 8.7%) – Shares rose as the company reported strong second quarter earnings. The company earned $0.36 per share, surpassing analyst expectations $0.22 per share, on $354.3 million of revenue, versus expectations of $328 million.

Notes on some relevant transactions:

Boeing announced Thursday that it will acquire Solutions Made Simple Inc., an information services provider for the IC and U.S. government. The terms of the deal, which is expected to close in 3Q11, were not disclosed. The transaction will further expand Boeing’s capabilities in C4ISR and cybersecurity.

SAIC announced Thursday that it will acquire Vitalize Consulting Solutions Inc., a provider of clinical, business, and IT services for healthcare enterprises. The terms of the deal, which is expected to close in early August 2011, were not disclosed. The transaction will strengthen SAIC’s existing government health solutions business and provide a dynamic channel into the commercial health provider market.

Stratos BV, a global provider of advanced mobile and fixed-site remote communications solutions, announced Thursday that it has acquired Blue

Ocean Wireless Ltd., a provider of shipboard GSM services that enables crewmembers to use personal GSM phones to communicate via voice and SMS, for an undisclosed amount. The transaction will improve Stratos’ GSM services to its global customer base.

General Dynamics announced Monday that it has acquired Network Connectivity Solutions Corp., a provider of enterprise services and cloud computing to the DoD, for an undisclosed amount. The cash transaction brings GD a prime position on the DISA Encore II vehicle and bolsters its enterprise IT solutions for DoD customers.

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