Unisys Opts to Remain in Federal Marketplace

Unisys Corp. announced April 16 it will not sell off its federal business unit, citing weak market conditions that generated unsatisfactory offers.

"What's going on in the market is very much a price issue. We have a very clear idea in our minds of the value of the federal group, and we did not feel we were getting the kinds of offers that recognized that value," said Unisys spokesman Jay Grossman.

He said the company received one offer, but it was turned down because it was not for a cash sale but based on the buyer's stock.

"Our chairman was very clear [after talking] to the investment community that we didn't want an offer backed by stock," he said.

Unisys, based in Blue Bell, Pa., had originally decided to sell the federal unit because of its size.

"It was a scale sort of thing. The federal marketplace had grown to the point that we felt we either needed to acquire more capability to have the same [abilities] as some of the large players, or divest to those players," Grossman said.

John Allen, managing director of Quarterdeck Investment Partners Inc., Washington, agreed that the size of Unisys' federal business has been a drawback.

"It's a decent size, maybe not at critical mass like some of the giants focused on the federal marketplace. But it's not small," Allen said. "Their peers in the federal market have [grown] through a combination of organic growth and acquisitions."

With the decision to keep the federal unit, the company intends to move aggressively to position the business for profitable growth by de-emphasizing the sale of commodity hardware, streamlining infrastructure costs and expenses, and better integrating the unit within the overall corporate business structure.

It is premature to speculate whether there will be any downsizing of the federal unit in the course of combining operations, Grossman said. And the condition of the market ? just as it impeded the company's plans to sell the business ? makes it unlikely that Unisys would make any major acquisitions, he said.

Quarterdeck's Allen said now may be the wrong time to get out of the federal market anyway because of economic factors, but the company will face strong competition.

"The conditions in the federal sector aren't weak," he said. "But it can be challenging to [grow the business] one contract at a time."