Stocks of Unisys Corp hit a 52-week peak after the company announced that Science Applications International Corp has agreed to buy its federal contracting unit for $1.2 billion in cash.
Unisys disclosed that it plans to use a majority of the sale to settle its debt and cut its US pension dues, which have dragged down the company's balance ledgers despite recent growth.
Shares of the Blue Bell, PA-headquartered operating system giant rallied more than 50 percent to $17 during pre-market sessions on Thursday.
The federal contracting arm of Unisys has been a huge factor in the software maker's financial transformation and represents around 28 percent of its total profits, bringing in approximately $690 million in revenues per year.
After over a decade of weak annual revenue growth, Unisys reported a 4 percent increase in 2018 and has since made significant upgrade expectations.
The financial advantages of acquiring Unisys Federal are compelling, which includes the accretion of adjusted margins, non-GAAP earnings per share, and "generation of cash," Nazzic Keene, chief executive officer of SAIC, said. The agreement is to be finalized by May 1.
SAIC anticipates the acquisition to boost its information technology capability, Cloud migration, security and modernization program. SAIC is also seeking to broaden its intellectual property portfolio and technology-driven products to support federal clients.
Additionally, with strategic initiatives to enhance new business opportunities, SAIC aims to expand its access to existing and new customers.
One of the benefits that Unisys will gain from the deal is the unfunded pension deficit to be reduced from $1.74 billion as of end 2018 to around $1.14 billion on a pro-forma basis. Unisys will also have the option to make further discretionary contributions to funding requirements beyond 2022.
The success of Unisys in expanding its operations has been linked to its security expertise and helping government agencies enhance applications and securely operate them in the Cloud.
Unisys announced in October that it was granted a $214 million Defense Department contract to upgrade tech services for a group of 19 defense contractors functioning outside the military divisions.
SAIC is a leading technology provider that solves the most complicated challenges of modernization and readiness across defense, space, civilian and intelligence markets. Its robust portfolio includes cutting-edge systems, engineering, IT, Cloud services, cyber, advanced simulation and analytics.
Unisys plans to concentrate on its Enterprise Solutions portfolio, which has "always represented the crucial area for growth, efficiency and profitability," Unisys chief financial officer Mike Thomson stated.
