Unisys Corporation, a leader in digital transformation solutions, entered into a definitive agreement to sell the company's U.S. Federal business to Science applications International Corp. (SAIC) for $1.2 billion. The transaction multiple of approximately 13x LTM 9/30/19 Adjusted EBITDA(5) represents a significant premium to Unisys' trading multiple. Net proceeds are largely expected to be used to pay down debt and reduce pension obligations, thereby significantly improving Unisys' balance sheet, its U.S. pension funded status and overall financial flexibility. The transaction was unanimously approved by the Unisys Board of Directors and is expected to close in the first half of 2020, subject to customary closing conditions.

Unisys' U.S. Federal business represents more than 1,900 associates, with approximately $689 million in revenue for the LTM period ended September 30, 2019.

"This transaction comes at a significant premium to the Unisys trading multiple, and is a tribute to the unique and attractive business that our U.S. Federal colleagues have built over many years," said Unisys Chairman and CEO Peter Altabef. "Under the leadership of Venkatapathi "PV" Puvvada, we have become known as a true innovator in the federal market, leveraging powerful intellectual property and a world-class team. This transaction will allow us to significantly enhance our balance sheet, which will create increased operational flexibility that will ultimately position us to better serve our clients while delivering increased value to investors."

Use of Proceeds

Unisys intends to largely use the net proceeds from the sale to pay down debt and reduce its U.S. pension obligations by applying a portion of the net proceeds to its U.S. defined benefit pension plans:

• Pro forma for the transaction, the company's net debt (inclusive of pension deficit) is expected to be reduced by approximately $1.04 billion.
• The company intends to fully redeem its $440 million of Senior Secured Notes in accordance with the terms of those notes.
• The remaining net proceeds targeted for net debt reduction (~$600 million) are expected to be contributed to U.S. pension plans and applied toward the minimum required contributions in 2020, 2021 and 2022. This will effectively remove the requirements to make any cash contributions to the U.S. plans out of operating cash flow in 2020, 2021 and 2022. This will also increase the funded status of the U.S. pension plans to allow for potential removal of pension liability through bulk lump sum offerings and potential annuitization of obligations. Cumulative required contributions into worldwide pension plans from 2020 through 2025 are expected to be reduced to approximately $775 million on a pro forma basis from $1.375 billion based on assumptions as of year-end 2018. The company will have the flexibility to make additional discretionary contributions to smooth future funding requirements beyond 2022.
• The company's unfunded pension deficit is expected to be reduced from $1.74 billion as of year-end 2018 to approximately $1.14 billion on a pro forma basis.
• Pro forma net debt inclusive of pension obligations is expected to be approximately $860 million, relative to $1.9 billion pre-transaction, resulting in pro forma net leverage of 2.4x LTM 9/30/19 Adj. EBITDA(6), relative to 4.2x pre-transaction.
• The company expects to offset any federal taxable gains from the sale with its existing unrestricted tax assets and expects additional tax assets to be generated by the aforementioned pension contributions.

"In addition to the benefits from a meaningfully improved balance sheet, we see Unisys as having significant financial upside potential, as Enterprise Solutions has always represented the key area for improvements to efficiency and therefore our profitability," said Mike Thomson, senior vice president and CFO of Unisys. "Unisys will continue to execute on plans already established for driving improved operating margin, while also retaining the disciplined focus on cash flow that has been key to our recent transformation."

Built on Strong Performance, Innovative Solutions

"Our innovative solutions and focus on security have made us a critical partner to many of the largest, most complex enterprises in the world and helped improve the financial performance of Enterprise Solutions in recent periods," Eric Hutto, senior vice president and president, Enterprise Solutions said. "We will use the same technology-enabled, intellectual property-based solutions that have helped drive the company's recent success, such as Unisys Stealth®, CloudForte®, InteliServe™ and ClearPath Forward®. Our increased capital structure flexibility will allow for further investment in new solutions and more optionality in deal pursuits, with a disciplined focus on optimizing cash flow and profitability."

Tax Asset Protection Plan

In conjunction with the transaction, Unisys also announced that it has adopted a Tax Asset Protection Plan (the "Plan"), which is designed to protect Unisys' tax assets in contemplation of the sale discussed in this release. This Plan is similar to tax benefit protection plans adopted by other public companies with significant tax attributes.

Unisys' ability to use its tax attributes would be significantly limited if there were an "ownership change" for federal tax law purposes, which generally occurs when the percentage of Unisys' ownership of one or more 5% shareholders has increased by more than 50% over the lowest percentage owned by such shareholders at any time during the prior three years (calculated on a rolling basis).

The Plan is designed to protect Unisys' valuable tax assets by reducing the likelihood of an 'ownership change' through actions involving Unisys' securities.

As part of the Plan, Unisys has declared a dividend of one preferred share purchase right (a "Right") for each outstanding share of Unisys common stock, par value $0.01 per share, payable to stockholders of record as of February 15, 2020 as well as to holders of Unisys common stock issued after that date. In the Plan, the acquisition of 4.9% or more of the Unisys common stock would trigger the operation of the Rights. There is no guarantee, however, that the Plan will prevent Unisys from experiencing an ownership change.

Unisys' Board of Directors has the discretion under certain circumstances to exempt acquisitions of Unisys' securities from the provisions of the Plan. The Plan may be amended by Unisys' Board at any time.

The issuance of the Rights will not affect Unisys' reported earnings per share and is not taxable to Unisys or its stockholders.

Advisors

Centerview Partners LLC is serving as exclusive financial advisor and Sullivan & Cromwell LLP is serving as legal advisor to Unisys.