(Reuters) - U.S. defense contractor General Dynamics (N:GD) on Tuesday raised its offer for sector peer CSRA Inc (N:CSRA) to $9.7 billion, including $2.8 billion in debt, in an attempt to top an unsolicited bid from CACI International Inc (N:CACI).
General Dynamics' revised offer under a merger agreement with CSRA's board represents an equity value of $6.9 billion or $41.25 per share in cash, compared with the prior $6.8 billion or $40.75 per share.
The revised bid from General Dynamics for CSRA, a provider of information technology and related services to the U.S. defense department, is just shy of CACI's $41.79 per share cash-and-stock offer, based on CACI's closing price on Monday.
Given the all-cash nature of General Dynamics's offer, it has considerably less risk and may prevail over CACI's bid, analysts have said.
"We still think the likelihood of General Dynamics and CSRA deal remains high," CFRA Research analyst David Holt wrote in a note.
Shares of CSRA rose as much as 1 percent to $41.44, while those of General Dynamic gained 1.3 percent to $226.90.
On Sunday, CACI, which sells information services to national security agencies, offered to buy CSRA for $44 per share, consisting of $15 per share in cash and 0.184 CACI shares for each CSRA share.
CACI's stock fell 7.5 percent on Monday, lowering the offer's overall price. The company's shares rose as much as 5 percent to $152.80 in afternoon trading on Tuesday.
"The rally in CACI's shares is a reflection of investors thinking that General Dynamics will prevail, and that CACI will not put itself in this leveraged position," Credit Suisse (SIX:CSGN) analyst Robert Spingarn told Reuters over the phone.
"It remains to be seen though if the CACI management sees it differently."
CACI said on Tuesday it was reviewing General Dynamics' revised offer.
While CACI has been trying to scale up through acquisitions, General Dynamics expects a deal with CSRA to help grab more of the revised defense budget.
Federal information technology and services spending, down sharply over the past few years due to cuts in defense budget, is expected to pick up again as President Donald Trump seeks to bolster military spending.