Cerberus-backed group increases Affiliated bid

A Cerberus-backed bid for IT outsourcing firm Affiliated Computer Services has been raised nearly 5 percent – after its board’s rejected the investors’ request to enter into exclusive negotiations.

Cerberus Capital Management and Affiliated Computer Services board chairman and founder, Darwin Deason, have sweetened their buyout offer for the IT outsourcing company. The consortium has increased its per-share bid to $62, up from $59.25 per share, valuing the company at more than $6 billion.

A special committee charged with evaluating ACS’ strategic alternatives acknowledged the new Cerberus-backed bid, but said in a statement: “The special committee continues to have concerns about the Deason/Cerberus proposal and the sale process that it outlines, particularly with regard to the unchanged exclusivity arrangement that the independent directors asked to be voided on March 21, 2007.”

In a letter to Deason dated Monday, the committee asked him to further explain his exclusivity agreement with Cerberus, in terms of how the group would respond to additional bidders as to the group’s perceived timing advantage, termination fee and support of the chairman.

Additionally, the letter asks Deason how he expects potential bidders to react to the fact that he personally stands to benefit from a higher price offered by another party – Deason  owns more than 40 percent of ACS – and  whether or not full terms of the exclusivity agreement would be made public.

The Deason/Cerberus deal reportedly would allow ACS 40 days to solicit alternate proposals, and impose a break-up fee of 1.5 percent of the company’s equity value, the Wall Street Journal said.

Following the group’s original 20 March offer, Deason sent a letter to the board alleging the special committee “has refused to negotiate with us, to permit Cerberus to conduct essential due diligence or to engage us in any constructive fashion”.

Last year, a similar take-private deal for ACS fell apart. Texas Pacific Group, The Blackstone Group, Providence Equity Partners and Silver Lake Partners were reportedly part of the bidding consortium, submitting an offer rumoured to have been in the $63 to $65 per share range. That deal was rejected by Deason, Jefferies analyst Joseph Vafi told the Journal.

ACS has also been one of the companies recently rocked by corporate America’s stock options scandals. After investigations last year found the firm had backdated stock options for management, ACS was forced to sack its chief financial and operating officers as well as pay $50 million in accounting fees.