CSC and DynCorp "a perfect match"

DynCorp CEO Paul Lombardi calls the planned acquisition of DynCorp "a perfect match."

In a move that will expand its work with the federal government, Computer Sciences Corp. is buying DynCorp, an employee-owned information technology and outsourcing company.

The deal, valued at $950 million, will increase CSC's revenue from the federal government to $6 billion a year, making it one of the 10 largest government contractors, the companies said. CSC of El Segundo, Calif., will pay approximately $677 million in stock and cash for DynCorp, and also will assume DynCorp's $273 million in debt.

The acquisition of DynCorp will broaden CSC's reach into the defense market, where DynCorp holds a strong position in providing technical support services to the military, said Paul Lombardi, DynCorp's president and chief executive officer.

"They are strong in back office support, while we are on the frontlines supporting the warfighters," he said. For example, CSC is modernizing the Army's wholesale logistics system, while DynCorp manages and operates the trucks that deliver materials.

"They see and we see a perfect match," he said.

"We are seizing an opportunity to significantly strengthen our leadership position in the U.S. federal marketplace, augment our capabilities to support the requirements of the new Homeland Security Department and respond to the federal government's initiative to increase its reliance on service providers," Van Honeycutt, CSC chairman and CEO, said in a statement.

CSC ranked No. 6 on Washington Technology's 2002 Top 100 systems integrators in the federal information technology market, while DynCorp ranked No. 22. The combined companies would rank No. 3 on the list, behind Lockheed Martin Corp. and Northrop Grumman Corp., which just completed its purchase of TRW Inc.

The 43-year-old CSC, posting revenue of $11.4 billion for the 12 months ending Sept. 27, does business with every agency in the U.S. government. Its major competitors include Electronic Data Systems Corp. and IBM Corp. For the 12 months ended Sept. 26, DynCorp pulled in about $2.3 billion in revenue.

After closing Thursday at $34.67, shares of CSC opened down at $34.50 on Friday, hours after the acquisition was announced.

Under terms of the deal, which requires shareholder and regulatory approvals, CSC will pay $15 cash and about $43 in market value of CSC stock for each share of privately held DynCorp. DynCorp's stock is traded on an internal market and on its last trading day, Nov. 7, the stock traded at $52.50. The CSC offer, which amounts to $58 per share, is a 10 percent premium over the price, Lombardi said.

The two companies already have identified one specific project, Flight School 21, in which their position to win the contract will be strengthened by the acquisition. The Army project will increase the use of simulators in training helicopter projects.

Lombardi said CSC will be able to leverage DynCorp's helicopter support background with both companies' simulation and training expertise. "It's a powerful combination," he said.

Market areas CSC gains added capabilities include training and simulation, logistics, telecommunications and networking, and homeland security, Lombardi said.

The integration of DynCorp may mean some layoffs - mostly in administrative areas - but final decisions on how the companies will be integrated have not been made, he said.

Except for in a few isolated cases, the DynCorp name will disappear, Lombardi said.

DynCorp announced in March that it was seeking a buyer. Although several government IT companies have conducted initial public offerings of stock since then, Lombardi said that was never really an option for DynCorp.

"An IPO would have been a lot riskier," he said. "I don't think we would have gotten $58 a share. We may have been in the 40s."

Staying independent also was not a viable alternative because DynCorp lacked the financial ability to make the kind of acquisitions needed to keep up with other large competitors, such as Northrop Grumman and Lockheed Martin, Lombardi said.

CSC and DynCorp expect the deal to close in the first quarter of 2003.

About the Author

Nick Wakeman is the editor-in-chief of Washington Technology. Follow him on Twitter: @nick_wakeman.

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