Engineering and technical services contractorÂ Engility Holdings (NYSE: EGL) has agreed to purchaseÂ professional services provider TASC forÂ $1.1 billion in stock.
Both Chantilly, Virginia-basedÂ companies said Tuesday they expect to close the deal in the first quarter of 2015, pendingÂ votesÂ from both sets of shareholders and regulatory approvals.
Engility expects the deal to increase its earnings per share in 2016 and will assume $613 million in TASC’s net debt and the net present value of TASC’s tax assets through the transaction.
Engility will also raiseÂ $585 million in incremental debt to fund the refinancing of its existing debt andÂ aÂ special $11.40-per-shareÂ cash dividend to its shareholders, who will receive the payment upon the transaction’s close.
TASC’s owners –Â affiliates of Kohlberg Kravis Roberts & Co. L.P. and General Atlantic LLC –Â and both boards of directors have approved the transaction, which the companies expect to create a combined business withÂ $2.5 billion in pro forma revenue for 2015 and nearly 11, 000 employees.
TASC has approximately 4, 000 employeesÂ andÂ expects to generate close to $1.1 billion in revenue for calendar year 2014.
âThe combination of our two complementary businesses is transformational and represents a unique opportunity to create a top-tier government services company, â said Engility President and CEO Tony Smeraglinolo, who will hold both titles for the combined company.
“This is transformational for Engility, TASC and the governmentÂ srvices market. The combination is going to be great for our all of our stake holders, including our customers, investors and employees, ” Craig Reed, SVP of strategy and corporate development at Engility, told GovCon Wire.
Engility, the former government services division of L-3 Communications (NYSE: LLL), Â spun off from L-3 in July 2012 and TASC, the former advisory services division of Northrop Grumman (NYSE: NOC), was purchased by its current ownership group in 2009.
Earlier this year, Engility closed its acquisition of Massachusetts-based services contractor Dynamics Research Corp. for aroundÂ $120 million, or $11.50 per share in cash.
John Hynes, current president and CEO of TASC, will become chief operating officer of the combined company, while Engility Chairman Edward BoykinÂ and TASC ChairmanÂ Peter MarinoÂ will serve asÂ non-executive co-chairs of the combined company.
EngilityÂ estimates its defense business to represent 48 percent of its portfolio after the deal closes, with 28 percent in the intelligence sector and 24 percent with civilian agencies.
The special dividend for Engility stockholdersÂ isÂ subject to final adjustments depending on the company’sÂ diluted share count at time of the deal’s closure, Engility said.
TASC’s owners will receive approximately 18.9 million shares of Engility, which will represent aÂ 51-percentÂ ownership stake in the combined company on a pro-forma, fully-diluted basis.
Engility will hold majority control of the board of directors, which willÂ grow from seven members toÂ 11 members and include four nominees from TASC’s owners.