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COVANSYS TO BECOME PRIMARY PROVIDER OF
OUTSOURCED IT SERVICES TO FIDELITY NATIONAL FINANCIAL, INC.
Five-Year Agreement to Generate Anticipated Revenues
of $150 Million;
FNF to Purchase 29% Equity Stake in Covansys
FARMINGTON HILLS, MI, April 27, 2004 – Covansys Corporation
(NASDAQ: CVNS), a leading global provider of strategic outsourcing
and integration services, today announced that its Board of Directors
has unanimously approved a long-term Master Services Agreement
(“MSA”) and a Stock Purchase Agreement (“SPA”)
with the Fidelity Information Services, Inc. subsidiary of Fidelity
National Financial, Inc. (“FNF”) (NYSE: FNF), one of
the world's largest providers of information-based technology solutions
and processing services to financial institutions and the real
estate industry. The MSA will make Covansys the primary strategic
provider of outsourced IT services to FNF.
The strategic alliance with FNF, which is expected to generate
an anticipated $150 million in revenues over the next five years,
combines Covansys’ leading position in strategic outsourcing
and integration services, including its high quality, cost-effective
offshore service capabilities in India, with FNF’s deep experience
serving financial institutions and the real estate industry with
information-based technology solutions and processing services.
Master Services Agreement
Covansys expects to realize a number of significant financial and
strategic benefits as a result of its multi-year MSA with FNF
including:
• The generation of an income stream that is expected to
increase Covansys’ annual revenues by over five percent by
2005 and to be significantly accretive to the company’s earnings
per share on a fully diluted basis by 2005;
•
The opportunity to substantially strengthen and enhance Covansys’ existing
expertise in the Financial Services sector, which accounted for
approximately 23 percent of the company’s fourth quarter
2003 revenues;
•
The ability to add additional scale to the company’s unparalleled
client support capabilities in India, where Covansys employed as
of December 31, 2003 more than 2,500 billable professionals at
development centers in Chennai, Mumbai and Bangalore, two of which
carry CMM® Level 5 quality ratings; and
•
The opportunity, given FNF’s position as a leading-edge provider
of mortgage and banking services, to develop innovative information
technology outsourcing solutions for its clients that will establish
the benchmark for best practices in the financial services sector.
“We are excited about entering into what we believe will
be a highly successful and mutually rewarding relationship with
FNF,” said Covansys Founder and Co-Chairman of the Board
Raj Vattikuti. “Our partnership firmly establishes Covansys’ global
reputation as both a leader and an influencer in the increasingly
competitive and growing offshore outsourcing space. FNF’s
selection of Covansys as its primary provider in this area is testament
to our capabilities in servicing the financial services vertical
and to our fourteen-year track record of offshore success. This
relationship will build on these achievements by immediately enhancing
our ability to help leading financial services companies realize
substantial productivity and efficiency gains through our innovative
information technology solutions.”
Martin C. Clague, President and Chief Executive Officer of Covansys,
added, “This strategic partnership with FNF gives Covansys
a unique opportunity to develop innovative, full-service solutions
that integrate technology, services and processes for many of the
biggest names in the financial services industry. As a result,
we can significantly accelerate our penetration of this sector.”
“This is an important strategic investment for FNF,” said
William P. Foley, II, Chairman and Chief Executive Officer of FNF. “Prior
to this investment, FNF’s global outsourcing activities consisted
of project-based, contractual relationships with several offshore
service providers. While the absolute cost savings in offshore
outsourcing are compelling, we have been searching for a strategic
partnership that not only optimizes our technology delivery efforts
from a cost, quality and time-to market perspective, but also improves
our competitive advantages in generating incremental revenue from
our financial institution customer base. With this significant
investment in Covansys and our representation on the Board of Directors,
we have found an outstanding U.S. based IT services partner with
well established operations in India that allows FNF to accomplish
these objectives.”
FNF Stock Purchase Agreement
Under the terms of its SPA with FNF, Covansys will issue FNF approximately
8.7 million shares of common stock at a price of approximately
$104.4 million and four tranches of warrants, each of one million
additional shares of Covansys common stock priced at between
$15 and $24. FNF will also purchase approximately 2.3 million
Covansys common shares from Raj Vattikuti, Co-Chairman and founder
of Covansys.
Martin Clague stated, “FNF’s equity position in Covansys
will give it the ability to participate in our long-term growth
and profitability. The ownership position FNF will take in our
Company underscores its strong belief in the value that our partnership
will create for Covansys shareholders – a belief that is
fully shared by our management team and Board.”
Recapitalization Agreement
In order to facilitate the transactions with FNF and simplify its
capital structure, Covansys has also entered into a recapitalization
agreement with funds managed by Clayton, Dubilier & Rice
(“CD&R”), a private equity investment firm that
holds 200,000 of Covansys’ Series A Voting Convertible
Preferred Shares or approximately 8.7 million common shares on
an as-converted basis, and 5.3 million warrants, to restructure
the funds’ ownership interest in Covansys and corresponding
governance rights for a combination of cash, stock, notes and
warrants.
Under the terms of this agreement, CD&R-managed funds will
exchange all of their existing Covansys holdings for consideration
consisting of $180 million of cash, two million shares of Covansys
common stock, a $15 million subordinated note due December 31,
2005, and five million five-year warrants with a strike price of
$18 per share. Covansys will finance the transaction with CD&R
with cash on hand, which totaled $127.5 million as of December
31, 2003, as well as proceeds from the FNF investment.
As a result of the Recapitalization Agreement with CD&R, Covansys
expects to take a one-time, non-cash charge upon the closing of
that transaction. While the amount of the non-cash charge will
depend on trading price of the stock when the transaction is finalized,
based on the closing price of $12.14 per share of the Company's
common stock as of Monday, April 26, 2004, the estimated charge
would be $1.63 per share, assuming conversion of the convertible
redeemable preferred stock.
John Stanley, an independent Director of Covansys stated, “As
a result of the transactions we have entered into with FNF and
CD&R, Covansys will have a greatly simplified capital structure
that will enhance the transparency of our company for investors
and align the interests of all our stockholders. We are pleased
that CD&R, which has been a valued partner to us, will continue
to have a stake in the future success of our company.”
Equity Ownership and Other Matters
After the transactions with FNF and the recapitalization with CD&R
are completed, FNF will own approximately 29 percent of Covansys’ outstanding
common shares, Raj Vattikuti will own approximately 17 percent
and CD&R will own approximately five percent of Covansys’ outstanding
common shares.
The SPA with FNF is subject to approval by Covansys shareholders,
the expiration of the waiting period under the Hart-Scott-Rodino
Antitrust Improvements Act of 1976 and the satisfaction of other
customary closing conditions. It is expected that the transaction
will close by the end of the second quarter of 2004.
The Chesapeake Group served as financial advisor to Covansys and
Butzel Long and Dewey Ballantine LLP served as legal advisors to
Covansys. Citigroup acted as financial advisor to FNF. Debevoise & Plimpton
LLP provided legal advice to CD&R.
Conference Call Information
Covansys will hold an analyst / investor call to discuss this transaction
today at 11:00 am EDT. Domestic callers may access the teleconference
by dialing 877-407-8033; international callers may dial 201-689-8033.
A live Internet audio broadcast of the call may also be accessed
at http://www.vcall.com/CEPage.asp?ID=87789 or at www.covansys.com
by clicking on the indicated link on the home page. The webcast
will be available for replay within two hours of the conclusion
of the call. A telephone replay of the call will also be available
beginning in the afternoon of April 27 through noon on May 11
by dialing 877-660-6853 and entering passcode 101139.
About FNF
FNF, Inc., number 262 on the Fortune 500, is a provider of products
and outsourced services and solutions to financial institutions
and the real estate industry. The Company had total revenue of
more than $7.7 billion and earned more than $860 million in 2003,
with cash flow from operations of nearly $1.3 billion for that
same period. FNF is one of the world's largest providers of information-based
technology solutions and processing services to financial institutions
and the mortgage and financial services industries through its
subsidiary FNF Information Services, Inc. FNF Information Services
processes nearly 50 percent of all U. S. residential mortgages,
with balances exceeding $2.5 trillion, has processing and technology
relationships with 46 of the top 50 U. S. banks and has clients
in more than 50 countries who rely on its processing and outsourcing
products and services. Additionally, FNF is the nation's largest
title insurance company and also provides other real estate-related
services such as escrow, flood and tax certifications with life
of loan monitoring, merged credit reporting, property valuations
and appraisals, default management, relocation services, flood,
homeowners and home warranty insurance, exchange intermediary
services, mortgage loan aggregation and fulfillment, multiple
listing services software, mortgage loan origination software,
collateral scoring analytics and real property data. More information
about the FNF family of companies can be found at www.FNF.com
and www.FNFinfoservices.com.
About Clayton, Dubilier & Rice
Clayton, Dubilier & Rice, Inc. is a leading private equity
investment firm that has earned consistent, superior investment
returns using an integrated operational and financial approach
to building and growing portfolio businesses. Since its founding
in 1978, CD&R has managed the investment of over $5 billion
in 37 businesses - mostly subsidiaries or divisions of large multi-business
corporations - representing a broad range of industries with an
aggregate transaction value in excess of $20 billion and revenues
of more than $27 billion. The firm has offices in New York and
London. For more information about CD&R, visit www.cdr-inc.com.
About Covansys
Covansys Corporation, (NASDAQ: CVNS), is a global consulting and
technology services company specializing in industry-specific
solutions, strategic outsourcing and integration services through
a unique onsite, off-site, offshore delivery model that helps
clients achieve rapid deployment, world-class quality and reduced
costs. Founded in 1985, Covansys has successfully delivered an
array of innovative and cost-effective business and technical
solutions to leaders in the private and public sectors. With
one of the largest offshore capabilities of any technology services
provider based in the United States, Covansys has achieved the
SEI’s CMM® Level 5 quality ratings at two of its offshore
development centers in India.
Safe Harbor Statement
With the exception of statements regarding historical matters and
statements concerning our current status, certain matters discussed
herein are forward-looking statements that involve substantial
risks and uncertainties. Such forward-looking statements may
be identified by the words "anticipate," "believe," "estimate," "expect" or "intend" and
similar expressions. Our actual results, performance or achievements
could differ materially from these forward-looking statements. Factors
that could cause or contribute to such material differences include
general economic conditions and conditions in the IT industry
such as the demand for IT services, public sector government budgetary
constraints, potential cost overruns on fixed-price projects, effective
application of the percentage of completion method of accounting
for fixed priced contracts, risks related to merger, acquisition
and strategic investment strategy, variability of operating results,
government regulation of immigration, exposure to regulatory, political
and economic conditions in India and Asia, competition in the IT
services industry, the short-term nature and termination provisions
of contracts, economic conditions unique to clients in specific
industries and limited protection of intellectual property rights.
These and other factors are described in the Company’s filings
with the U.S. Securities and Exchange Commission.
Contacts
Investors:
David Roady
Tel: (248) 848-2221
Email: droady@covansys.com
Media:
Laura Livingstone
Tel: 401-457-8514
Email: llivings@covansys.com
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