SAIC to go public

Science Applications International Corp., which has long touted its status as the nation's largest employee-owned research and engineering company, is about to change course. Early next year, SAIC plans to go public.

The company has been spending too much money buying back shares of its internal stock from employees and other shareholders, according to its filing with the Securities and Exchange Commission. The $7 billion company has spent $2.5 billion over the past five years on such repurchases, according to the filing.

“We should be using our cash on hand and cash flows from operations to fund our organic growth as well as strategic acquisitions,” wrote Kenneth Dahlberg, SAIC’s chairman and chief executive officer, in a letter to employees and shareholders.

Indeed, market watchers say they believe that SAIC’s IPO could fuel an already active merger and acquisition market. “In addition to enhancing shareholder liquidity, we think the proposed IPO will provide SAIC with greater financial flexibility to use cash flows and publicly-traded currency to execute acquisitions,” noted a UBS Investment Research client brief published today.

Jason Kupferberg, an IT services analyst with UBS Investment Research, said SAIC’s pending IPO also represents a strategy that other government integrators may consider. “It’s a strategy that these private companies are weighing," he said. "Do they sell out to midtier or large companies or go the IPO route?”

If SAIC is successful, other companies could be encouraged to take the same path, he said.

The numbers of shares to be offered in the IPO and the price range of the proposed offering have not yet been determined, according to SAIC.