UPDATE 1-Providence to buy SRA International for $1.88 bln

Fri Apr 1, 2011 11:44am EDT

* Providence to pay $31.25 per SRA share, 10.2 pct premium

* Shares of SRA up nearly 10 percent

* Founder Volgenau will continue as chairman of SRA board

* SRA may solicit other proposals in 30-day go-shop period

By Soyoung Kim

NEW ORLEANS, April 1 (Reuters) - Private equity firm Providence Equity Partners said on Friday it has agreed to buy U.S. defense consulting company SRA International Inc SRX.N for $1.88 billion in cash.

Under the agreement unanimously approved by SRA's board of directors, Providence will pay $31.25 for each SRA share, representing a 10.2 percent premium over the company's closing share price on Thursday.

Shares of the Fairfax, Virginia-based company rose 9.7 percent to $31.10 on the New York Stock Exchange, just below the Providence offer and indicating shareholders do not expect a higher bid to emerge.

SRA's board, led by Founder and Chairman Ernst Volgenau, said it was acting upon the recommendation of a special committee consisting of independent directors and recommended its shareholders approve the transaction.

Volgenau, who founded SRA in 1978 and controls 71 percent of its voting stock, will continue to serve as chairman of the board and the existing senior management team will continue to lead the company.

"We believe in the merits of this transaction, which serves the best interests of our shareholders, as well as those of our 7,300 employees and more than 1,400 contracts with customers," Volgenau said in a statement.

People familiar with the matter told Reuters previously that several buyout firms including Providence Equity, Veritas Capital and General Atlantic had held discussions about buying SRA.

The transaction is subject to approval of a majority of SRA's outstanding shares. Volgenau will roll over a portion of his existing SRA equity interest at the request of Providence, and continue to be significant shareholder in the privately held company.

SRA said it may solicit alternate proposals from other parties during a 30-day "go-shop" period.

SRA said its board formed a special committee in October 2010 to explore the possibility of an acquisition and hired Houlihan Lokey at that time.

A person familiar with the situation told Reuters on Friday that Providence first started examining a potential buyout of SRA about 14 months ago, well before the current sale process began.

Providence already owns security services company Altegrity and hired former SRA Chief Executive Renato DiPentima as a senior adviser in 2010.

Citigroup (C.N) and Bank of America Merrill Lynch (BAC.N) advised Providence on the transaction, while Houlihan Lokey was the financial adviser to SRA International.

(Reporting by Soyoung Kim, editing by Dave Zimmerman)