SRA International Gets Investor’s Suit Over Buyout Tossed

SRA International Inc. persuaded a judge to throw out an investor’s lawsuit challenging Providence Equity Partners LLC’s $1.88 billion buyout of the provider of computer services to the U.S. government.

SRA directors, including company founder Ernst Volgenau, acted properly in accepting the private-equity firm’s $31.25-per-share offer for the defense contractor as part of a leveraged buyout, Delaware Chancery Court Judge John Noble in Wilmington concluded today.

“The board’s decisions were rational and reasonable and made in good faith,” Noble said. He threw out claims by the Southeastern Pennsylvania Transportation Authority that it didn’t receive enough for its SRA shares in the 2001 deal.

The decision comes as government contractors such as SRA and Lockheed Martin Corp. (LMT) are dealing with budget cuts tied to the sequestration law’s mandates. Pentagon officials were forced to make $37 billion in reductions this year. SRA officials said in May that the cuts “adversely affected” the company’s fiscal 2013 financial performance.

Andrew Cole, an outside spokesman for Providence, declined to comment on Noble’s decision. Cole is a managing director with Sard Verbinnen & Co. in New York.

Directors of Fairfax, Virginia-based SRA agreed in 2011 to accept Providence’s $1.88 billion bid, amounting to a 10 percent premium over the computer firm’s share price. As part of the deal, SRA was slated to be led by its existing management, which included Volgenau.

Opportunistic Sale?

Volgenau, who founded SRA in 1978 and held 21 percent of its outstanding shares, stayed on as the company’s chairman. SRA provides computer-networking and cyber-security services to the U.S. Defense Department and other government agencies.

Philadelphia-based SEPTA, the nation’s fifth-largest public transportation system by ridership, filed suit over the deal in 2011 arguing Volgenau “opportunistically” sought to take the company private at a bargain price.

In his ruling, Noble concluded Volgenau’s push to sell the company didn’t create conflicts of interest that tainted the deal. SEPTA’s allegations that “Volgenau stood on both sides of the transactions is not supported” by the evidence in the case, the judge said.

SRA directors also were “fully informed” about the terms of Providence’s bid and “exercised due care” in approving it, he added.

Spending Cuts

Despite the mandated spending cuts, SRA officials said in a May 9 filing with the U.S. Securities and Exchange Commission they expect the U.S. government to continue funding cyber-security programs. In December, SRA bought MorganFranklin Corp.’s National Security Solutions division, which provides computer security, for about $34.2 million.

Last month, SRA agreed to move its headquarters to Chantilly, Virginia as part of a cost-cutting effort. Chief Executive Officer William Ballhaus has led a restructuring effort at the company to focus more on cloud computing and cyber security lines of business.

The case is Southeastern Pennsylvania Transportation Authority v. Volgenau, CA6354, Delaware Chancery Court (Wilmington).

To contact the reporter on this story: Jef Feeley in Wilmington, Delaware, at jfeeley@bloomberg.net

To contact the editor responsible for this story: Michael Hytha at mhytha@bloomberg.net

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