CSC Says It May Put Itself Up for Sale
Computer Sciences Corp., one of the nation’s largest information technology firms, said Tuesday that it was exploring a sale and would cut 5,000 jobs -- mostly in Europe -- as part of a restructuring.
The El Segundo-based company has been the subject of takeover rumors since last fall, but Tuesday’s announcement marked the first time that CSC has said it was actively considering putting itself up for sale.
CSC refused to identify potential buyers, saying only that it had retained Goldman Sachs & Co. to help examine its options “in response to recent expressions of interest.”
The announcement signals that a deal will happen “sooner than later,” said Joseph A. Vafi, an information technology services analyst with Jefferies & Co. “Something is brewing.”
The news pushed up CSC’s shares $2.51, or 4.4%, to $59.80, its highest closing price in five years.
Because of takeover speculation, CSC’s stock has gained more than 20% in the last six months. In November and January there were reports that CSC was in talks with several suitors, including investment firm Blackstone Group, computer maker Hewlett-Packard Co. and defense contractor Lockheed Martin Corp.
On Tuesday CSC cautioned that a deal might not occur, but analysts said the latest restructuring could make it more attractive to potential buyers and could help the company attain a higher sale price.
Analysts have pegged the value of CSC at $11 billion to $12 billion.
A sale would culminate years of consolidation within the information technology industry, they said. IT firms manage and maintain computer systems for companies and government agencies.
Since CSC fended off a hostile takeover bid by Computer Associates International Inc. in 1998, it has acquired more than a dozen companies. But it is still facing long-term competitive threats, particularly from India and Asia, where U.S. companies are increasingly outsourcing computer services.
In recent years CSC has focused on securing U.S. government contracts, which have more than doubled in the last two years, bolstering its cash flow and prompting interest from potential buyers. CSC now gets about one-third of its $14 billion in annual revenue from federal and local agencies.
The company first began considering a sale last fall after it was reported that Lockheed Martin and a consortium of private equity groups, including Blackstone, proposed a deal that would break up CSC into two parts -- servicing commercial and government customers.
In January, talk of a CSC deal resurfaced, this time involving Hewlett-Packard and Blackstone. Both companies declined to comment on the reports.
“You’ve got a lot of players that could be interested,” analyst Vafi said. CSC’s businesses are attractive to defense contractors interested in beefing up their government contract business and to large IT companies such as IBM Corp., Hewlett-Packard and British Telecom, that want to bolster their computer consulting and service businesses.
CSC has about 80,000 employees worldwide. On Tuesday, CSC said it would eliminate 4,300 jobs by next year and an additional 700 positions in 2008, or about 6% of its workforce. Most of the cuts would be in Europe, where business has lagged.
The cuts are not expected to have any effect locally, where CSC has about 500 workers at its El Segundo headquarters and several thousand more at sites throughout Southern California. The largest concentration of CSC employees, about 11,000, are in the Washington area working on federal contracts.
The job cuts will result in a pretax charge of $345 million in fiscal 2007 and $30 million in fiscal 2008, but the restructuring would produce $450 million in cost savings over the two years, the company said.
For Southern California, a sale of CSC would bring to an end a storied local company and one of the few Fortune 500 companies still headquartered in the region.
The company was started in 1959 by two entrepreneurs who pooled $100 in start-up capital and helped launch what would become a new industry.
