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Kratos Joins Forces With Digital Fusion

Kratos Defense & Security Solutions of San Diego has acquired Huntsville, Ala.-based Digital Fusion Inc. in a stock-for-stock transaction, the companies said Nov. 24.

The combined company will have 2,250 employees, and will allow Kratos to compete as a prime contractor for Department of Defense and other agency contracts.

Under the agreement, all outstanding shares of Digital Fusion will be converted into Kratos common shares. Kratos shareholders will own 80 percent of the company, and Digital Fusion shareholders will own 20 percent.

The transaction is subject to customary closing conditions, including shareholder approval, and is expected to close late this year or in the first quarter of 2009.

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Digital Fusion generates about $40 million in annual revenues from government contracts working on unmanned aerial vehicles, intelligence, surveillance and reconnaissance, sensor technologies, weapons systems and air and missile defense.

In November, Kratos reported third quarter 2008 revenues of $81.5 million. Revenues were $222 million in the first three quarters of the year.

“We are focused on building a company, through both organic and acquired growth, that is a leading provider to the Department of Defense, and other federal, state and local government agencies, as well as commercial customers,” said Eric DeMarco, president and CEO of Kratos. “This merger with DFI, once complete, will provide Kratos with expanded customer relationships and additional contract vehicles, and will position Kratos to pursue larger prime contracts in areas that Kratos could not have previously pursued.”

Kratos shares stood at $1.37 in late afternoon trading Nov. 24 on the Nasdaq exchange, up a penny from the closing price on the previous trading day.

Digital Fusion shares, which trade over the counter, rose 20 cents or 12 percent to $1.85 in afternoon trading.

, Ned Randolph

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