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Computer Sciences Prepares to Break Itself Up

Efforts to sell the company haven't panned out.


Technology consulting services provider Computer Sciences Corp. is planning to separate its government business from its commercial information technology division, people familiar with the matter said on Thursday.

An announcement could come as early as next week, when CSC releases its fiscal 2015 earnings on May 19, the people said. The breakup would follow multiple attempts by CSC over several years to sell itself. The company has a market capitalization of close to $9.5 billion.

The company is in the midst of a cost-cutting campaign amid sequestration and budget pressures from the U.S. government. However, its government business is seen as attractive to potential buyers because of the high barriers to entry for competitors.

While CSC is still open to acquisitions, it now sees a split in which shareholders would also get stock in a new company as the most attractive and tax-efficient transaction to pursue, one of the people said.

The sources asked not to be identified because the deliberations are confidential. CSC declined to comment.

The company’s shares ended trading 4.3 percent higher at $67.28 in New York on Thursday, after jumping as much as 7.1 percent earlier on the news.

In recent months, CSC has drawn buyout interest from French consulting company Cap Gemini, computer maker Hewlett-Packard and Canadian consulting firm CGI Group, as well as private equity firms. None of them could meet CSC’s valuation expectations, one of the people said.

Representatives for Cap Gemini and CGI did not immediately respond to requests for comment. An HP representative declined to comment.

Hedge fund Jana Partners disclosed a 5.9 percent stake in CSC in February, and said it would continue talks with the company about strategic alternatives and the composition of its board.

CSC’s North American public sector division offers IT and operations-related services to the U.S. Department of Defense and civil agencies of the federal government, as well as foreign, state and local government agencies. It had revenues of $998 million in the nine months that ended on Jan. 2, 2015.

The non-government divisions of CSC provide a wide range global infrastructure and business services, including cloud, cyber security and big data services. They had combined revenue of $1.9 billion for the nine-months that ended on Jan. 2.

(Reporting by Mike Stone and Nadia Damouni in New York; Editing by Bernadette Baum and Andre Grenon)

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