Halfway during the trading day the company announced that it will launch about $2.25 billion in credit facilities. The company will borrow $500 million in revolving credit facilities and the remainder in secured term loans. The company will use the proceeds to refinance $959 million in existing debt and might use the remaining funds to pay a special dividend of $1 billion.
Shares of Booz Allen Hamilton ended the day 13% higher after peaking at $17.41 per share on the back of these announcements. A special dividend of $1 billion would represent roughly 40% of the company's market capitalization, as the dividend could be as large as $7 per share.
Booz Allen Hamilton generated $5.9 billion in revenues for the full year of 2011. The company reported operating income of $388 million for that year, with net income coming in at $240 million, or $1.70 per share. Booz Allen Hamilton is relatively conservatively financed, holding roughly $960 million in short and long term debt. The company holds roughly $480 million in cash and equivalents for a net debt position of around $480 million.
The ambitious plan could provide a huge boost for Booz Allen's shareholders. The special dividend will result in roughly $1 billion in additional debt. Given the company's current net debt position of $500 million, Booz will hold about $1.5 billion in short and long term debt, a debt position which the company can easily sustain.
As such the debt position will come in around 4 times 2011's annual operating income. Net income which came in at $240 million for the full year of 2011, would fall to around $200 million on a pro forma as the company's debt service costs would increase. As such earnings per share would come in around $1.50 per share on a pro-forma basis.
As investors await a $7 special cash dividend, the operating assets of Booz Allen will be valued at around $10 per share. This values the operating assets at 7 times annual earnings, measured on a conservative measure.
Shares trade 3% lower so far this year, including today's gains. If the plan will be executed I see upward potential for levels in the low twenties.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.