Prisoner Scandal Reverberates On Wall Street
As ugly details continue to emerge about the mistreatment of Iraqi prisoners at the hands of Americans, investors haven't only been paying attention to the graphic images. They also have been focusing on the possible role of employees of CACI International Inc., a publicly traded company with a market value of $1.18 billion that provided interrogators for the U.S. military at Abu Ghraib prison in Iraq. (See related article.)
While the possibility that CACI may have a role in the prisoner scandal is very real, CACI's interrogation business accounts for less than 1% of its total revenue. The Arlington, Virginia, company is growing quickly and its work in sensitive areas such as Iraq and Afghanistan represents a tiny slice of its overall business.
And while some investors are concerned that the situation in Baghdad could make the Defense Department more reluctant to farm out tasks to companies such as CACI, experts say the trend toward privatizing much of the military's noncombat work will continue.
The wildcard in the bullish thesis: The alleged misdeeds in Iraq are so awful they could compel Congress to push for harsher punishment for private contractors involved, such as a ban on dealings with the U.S. government. But for now, industry specialists consider this unlikely. They say CACI could face substantial fines for any misdeeds by its employees in Iraq but probably would continue to receive government work.
Shares of CACI have fallen to $41.19 from $48 since the scandal erupted. As of 4 p.m. composite trading yesterday on the New York Stock Exchange, CACI shares were up 53 cents.
"The uncertainty is probably worse than the reality" for CACI, says Darren M. Bagwell, director of research at Thrivent Investment Management, which owns 117,000 shares of CACI. "The current drop is an opportunity because their interrogation work is just a sidelight for them -- this is an information-technology company."
Military officials testified last week that there were 27 private-sector contractors at Abu Ghraib. A February report by Army Maj. Gen. Antonio Taguba on abuse at the prison cited civilian contractors employed by CACI and another company, Titan Corp., which employs translators in Iraq. The report recommended reprimanding a CACI interrogator for helping to facilitate the physical and sexual abuse of detainees. That employee's lawyer has denied any wrongdoing by his client.
CACI and Titan say they are cooperating with government investigations and will take appropriate action if necessary. They point out that they still haven't been informed by the military of any illegal or unethical acts by their employees.
Jack London, CACI's chairman and chief executive, declined to specify how many CACI interrogators are in Iraq or other countries, such as Afghanistan. The company's interrogation business -- inherited from an acquisition of Pioneer Technology Group -- is part of a larger CACI business providing intelligence analysis, ranging from sending employees to areas of conflict to interrogate prisoners and install communications systems to bigger projects in the U.S., such as designing and maintaining intelligence databases.
But CACI's revenue has been growing at more than 20% annually in recent years thanks in part to other kinds of business, such as information-technology work for the Justice Department and new clients such as the Social Security Administration. The recent acquisitions of financial-technology company CMS Information Services Inc. and the intelligence operations of American Management Systems also should spur growth. "Overall Iraq activity as relates to CACI isn't that significant," says Joseph Vafi, a managing director at Jefferies & Co. in San Francisco. Mr. Vafi doesn't own shares of CACI and his firm hasn't done banking for the company.
Under procurement rules, if the Pentagon, or any individual military branch, suspends CACI, the company would become ineligible for all government contracts. For now at least, Pentagon officials say such a suspension of CACI isn't likely. While the Pentagon frequently suspends small contractors for faulty manufacturing or billing irregularities, CACI's relatively large role in information-technology services, and the sensitive nature of its classified intelligence work, make it unlikely that a blanket suspension would be issued, some say.
"I am still concerned that [the scandal] could impact their business, but the risk-reward is still favorable," says David Klaskin, chairman and chief investment officer of Oak Ridge Investments Inc., in Chicago, which owns about 600,000 CACI shares and believes the company could be acquired at some point.
CACI shares, which aren't cheap relative to the market based on the price-to-earnings ratio, are reasonable compared with those of competitors. Mark Jordan, an analyst at A.G. Edwards in St. Louis, estimates that in the financial year starting July 1, fast-growing CACI will generate cash flow valued at 117% of net income, compared with 75% for a typical contract-services company.
"CACI is selling at a discount to other leading companies in this industry. It should sell at a premium," he says. Mr. Jordan also doubts the Pentagon will suspend CACI, which has a solid track record with the Defense Department.
Even a hefty fine wouldn't jeopardize CACI's business. A number of big companies have paid hundreds of millions of dollars in fines to the Pentagon, and then quickly secured new contracts. For instance, Halliburton Co., which received $3.6 billion last year from government contracts in Iraq, paid a $2 million penalty in 2002, without admitting any wrongdoing, to settle allegations that it inflated costs on a maintenance contract at a now-closed military base in California.
As for Titan, the greatest concern is whether the potential involvement of employees subcontracted by the San Diego-based company will undermine the company's pending sale to Lockheed Martin Corp. The deal already has been delayed by allegations that Titan consultants paid bribes to compete for overseas business. Titan is in settlement talks with the Justice Department, and Lockheed has lowered its price to $20 a share from $22 a share. The acquisition is scheduled to close in late June. Titan's share price is down to $19.03 on the Big Board, from almost $19.50 at the start of the scandal.
A Lockheed Martin spokesman wouldn't comment on whether alleged prisoner abuse in Iraq will affect the deal. Lockheed officials said privately that they are monitoring the situation, but they doubt it will block the acquisition. "Does Lockheed need this headache?" asks Cristina Suarez, portfolio manager at Mellon HBV Alternative Strategies, a New York hedge fund that specializes in investing in strategies, including takeover deals. Ms. Suarez, whose firm has been betting against the deal, says the accusations increase the chances that Lockheed pulls out of the transaction.
美军虐俘丑闻触动华尔街
随著美军虐待伊拉克战俘丑闻的细节不断曝出，投资者不再仅仅关注于那些触目惊心的照片，还对CACI International Inc.员工在其中可能扮演的角色产生了兴趣。CACI是一家市值11.8亿美元的上市公司，曾向伊拉克阿布格莱布监狱的美军提供审讯人员。
虽然CACI牵扯进虐俘丑闻的可能性确实存在，但其审讯业务占总收入的比例还不到1%。该公司正在迅速发展，其在伊拉克和阿富汗等敏感地区的业务只占总体业务的一小部分。
虽然一些投资者担心，巴格达局势可能使美国国防部更不愿把任务外包给像CACI这样的公司，但专家认为，军方把大量非战斗性任务委托给私营部门的趋势将会持续下去。
这种乐观言论中尚不确定的因素是：伊拉克虐俘丑闻如此令人发指，可能会迫使美国国会对事件所涉及的私人承包商加大处罚力度，如禁止与美国政府进行交易等。但是，但到现在为止，行业专家认为这种情况不可能发生。他们说，CACI也许会因其员工在伊拉克的任何不端行为而面临巨额罚金，但很可能会继续获得政府订单。
自从丑闻传出以来，CACI股价已经由48美元跌至41.19美元，不过昨日收盘上涨53美分。
Thrivent投资管理公司研究主管柏格威尔(Darren M. Bagwell)说，对CACI前景不确定性的猜测可能过于悲观。该股目前的下跌是一个有利时机，因为它的审讯业务微不足道，其重点在信息技术领域。该公司持有117,000股CACI股票。
军方官员上周证实，在阿布格莱布监狱共有27家私营承包商。2月份，美国陆军上将泰格柏(Antonio Taguba)在关于监狱虐俘情况的一份秘密调查报告中提到了CACI和另一家公司Titan Corp.雇佣的文职人员。报告建议惩戒CACI的一位审讯人员，因他在美军对囚犯进行人身侵害和性侵犯的过程中为军方人员提供了便利。这位雇员的律师否认其客户存在不当行为。
CACI和Titan都表示，它们将密切配合政府调查，并将在必要的时候采取适当行动。它们指出，尚未接到军方关于其员工存在任何非法或失职行为的通知。
CACI董事长兼首席执行长林顿(Jack London)拒绝具体说明公司有多少审讯人员被派驻到伊拉克或阿富汗等其他国家。该公司的审讯业务属于其情报分析业务中的一部分，具体包括从派遣雇员到冲突地区审讯犯人到为在美国本土的较大规模的项目安装通讯系统（如设计和维护情报数据库）等。
但是，最近几年来，CACI的收入每年都在以超过20%的速度增长，这部分要归功于其他业务，如为司法部和社会保障局(Social Security Administration)等新客户提供信息技术服务。最近对金融技术公司CMS Information Services Inc.和American Management Systems信息业务的收购也使公司如虎添翼。Jefferies & Co.驻旧金山的董事总经理万菲(Joseph Vafi)说，总的来说，CACI与伊拉克丑闻的关联并不重要。他不持有CACI股票，其公司与CACI也没有业务往来。
根据采购法规，如果美国五角大楼或任何单独的军方机构取消CACI的承包资格，那么该公司今后将与所有政府合约无缘。不过，至少从目前来看，五角大楼官员表示不大可能中止CACI的合约。一些人认为，虽然五角大楼常常会因生产质量或帐目违规问题暂时取消部分小承包商的资格，但CACI在信息技术服务领域占据相对较高的地位，加上其从事的秘密情报工作的特殊性，它不可能遭遇全面禁止令。
芝加哥Oak Ridge Investments Inc.董事长兼首席投资长克拉斯基(David Klaskin)说，他仍担心丑闻会影响CACI的业务，但其风险回报率仍然很有吸引力。该公司拥有大约60万股CACI股票，它认为该公司将来有可能会被收购。
从本益比来看，CACI的估价相对大盘并不便宜，但和竞争对手相比仍显得很合理。A.G. Edwards驻圣路易斯的分析师乔丹(Mark Jordan)估计，在7月1日开始的财政年度里，处于迅速增长中的CACI将产生强劲的现金流，相当于净利润的117%，而一般的承包服务商这一比例为75%。
他说，CACI的股价低于行业内其他领先企业的水平，它应该超过其他公司。乔丹还猜测，五角大楼不会暂停CACI的资格。
即使遭遇巨额罚金，CACI的业务也不会严重受损。许多大公司都曾向五角大楼支付数亿美元的罚款，此后又很快获得了新的合约。例如，哈里伯顿(Halliburton Co.)2002年曾支付200万美元的罚金以就一项政府指控达成和解，但去年它依旧获得了在伊拉克的36亿美元政府合约。那项指控称它在加州某军事基地的维修合约中虚报成本。
对Titan来说，最大的担忧是其员工卷入丑闻是否会影响它正在与洛克希德马丁(Lockheed Martin Corp.)商谈的出售公司的交易。此项交易已经因有关Titan咨询师在海外业务竞争中行贿的指控而被拖延。Titan目前正在和司法部进行和解谈判，洛克希德马丁已将其收购价由每股22美元下调至20美元。
此项收购定于6月底完成，Titan的股价由丑闻刚曝出时的近19.50美元下跌至19.03美元。
洛克希德马丁的发言人不愿就伊拉克虐俘丑闻是否影响收购发表言论。该公司管理人士私下表示，他们正在关注形势进展，但认为这可能不会阻碍交易。而纽约对冲基金Mellon HBV Alternative Strategies的投资组合经理苏亚雷斯(Cristina Suarez)认为，丑闻增大了洛克希德马丁退出交易的可能性。
