DynCorp deal boosts CSC's telecom play

Computer Sciences Corp. is planning to create a telecommunications and networking unit after it purchases DynCorp, company officials said Dec. 20.


CSC of El Segundo, Calif., announced Dec. 13 that it was buying DynCorp of Reston, Va., in a $950 million deal that includes cash, stock and the assumption of debt.

The federal government is changing the way it buys telecommunications and networking services, and that is one of the areas where the DynCorp acquisition bolsters CSC capabilities, said Paul Cofoni, president of CSC federal sector.


Traditionally, the government relies on telecom carriers for telecommunications and networking needs, but with many companies in that industry in disarray, relying on a single supplier has become too risky, Cofoni said.


"We are seeing a number of network management [request for proposals] come out," he said.


DynCorp has telecommunications contracts with the FBI and the Environmental Protection Agency that are structured around service level agreements that set thresholds for factors such as reliability and technology refreshment, Paul Lombardi, DynCorp president and chief executive officer.

The contracts are not tied to a specific telecom carrier. "The agency couldn't care less who the carrier is," Lombardi said.


Once the merger is complete sometime in the first quarter of 2003, the new telecom unit will have "all the resources needed to prosecute any telecom/networking project in the federal government," Cofoni said.

Outsourcing is another major strength DynCorp will bring to CSC, Lombardi and Cofoni said.


DynCorp's strength is in mission areas directly supporting the Department of Defense in the field, while CSC builds and operates the systems that support the mission, they said. For example, CSC is modernizing the Army's wholesale logistics system, while DynCorp manages and operates the trucks that deliver materials.


"Together we will have a much better story to tell as a single solution," Cofoni said.


With the government revamping the A-76 process for conducting competitions between the public and private sector and the federal work force aging, more outsourcing is on the way, Lombardi said.


Talks between DynCorp and CSC began more than a year, but at the time CSC couldn't make the business case to complete the deal, Lombardi said. Then about a month and a half ago, talks resumed. Within 35 days, the deal was signed.


CSC is paying $15 in cash and $43 in CSC stock for each share of DynCorp. CSC also is assuming about $273 million in DynCorp's debt. DynCorp had about $2.3 billion in revenue for the year ended Sept. 26. CSC had $11.4 billion in annual revenue, about 25 percent of it coming from government work.

With the acquisition, CSC will have about $6 billion in annual government revenue. Cofoni said CSC will be one of the top three providers of government information technology services along side Lockheed Martin Corp. and Northrop Grumman Corp.