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By Nick Wakeman

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Nick Wakeman

Does a CSC split add up?

Over the years, Computer Sciences Corp. has repeatedly come up as a takeover target.

Reports surfaced in September and again over the weekend. The latest speculation is that the government business will be acquired by a private equity group and the commercial business will go to a strategic buyer.

While I tend to discount these rumors, this time we might actually see something happen.

The company’s stock price has flattened. The boost over the weekend from $66.93 to $71.74 a share was fueled by the buyout speculation.

But the $66.93 price is only $3.53 higher than the close from Feb. 24, 2014, of $63.40. On Feb. 25, 2013, the price closed at $46.47 a share and on Feb. 23, 2012, the price was $32.28. Those are very nice gains in value year over year, but that stopped this year.

It might be a bit of stretch but I wonder if the company’s turnaround is at its end from an investor perspective.

I’ve had several executives over the years tell me that every publicly traded company is for sale and to avoid being a takeover target, you need to be returning something to the shareholders. That’s usually a growing valuation or dividends. Stock buyback programs are be attractive, but that’s really a short-term play.

CSC’s dividends aren’t stellar at 92 cents for the year. And if the growth of its share price has peaked, then the best way to unlock value for shareholders is to sell the company at a premium over its price per share. And that premium needs to be higher than the expected growth of its price per share.

From reports in the financial press, it looks like CSC has been exploring options for several months, and a split might be the best way to unlock that value for shareholder.

A Raymond James analyst liked it to the “sum of the parts” adage. In other words, CSC parts are worth more than the whole.

There could be some good advantages for both the public sector business and the commercial business to being separate when you consider issues of focus, distraction and resources. Very few companies make a combination of both government and commercial work together, especially when the parts of the business are as large as CSC’s.

So, change is likely a foot and what that change will be remains to be seen, but I don’t think we’ll need to wait long.

Posted by Nick Wakeman on Feb 24, 2015 at 10:43 AM


Reader Comments

Wed, Feb 25, 2015 Brad Hysterizez

Concerns about job security and morale are critical to success. But part of success is not over-weighting this factor. CSC and others of its ilk have led the charge to consider most contractor labor as a commodity. Commodities have no emotions or human needs. So they get treated the way you see them getting treated around the Beltway. Turnover and recruiting replacements are planned activities with forecasted rates, projected costs, and audited results. All part of doing business with the government. The big firms that bragged they had a different, more sensitive way of managing human resources all tanked and are in no-growth modes right now and for he foreseeable future. Yes, some have goosed up their stock prices, but the hollowness is readily apparent to the alert customer and prospective employees, not to mention current employees.

Wed, Feb 25, 2015

This is wrong direction... the energy should be utilized to run the company, not split and sell to foreign company! Where is community responsibility?

Wed, Feb 25, 2015

Service companies such as CSC rely on their employees as the product; therefore, if the employees aren't happy then the end product suffers. In their effort to look good on paper CSC has made decisions that not only affected morale, but have also affected client's confidence. I can't see any of this or a sell-off of the business as a good thing.

Wed, Feb 25, 2015

Whatever the change is it probably will hurt CSC employees.

Tue, Feb 24, 2015

Re the second to last graf, government contractors have an exceptionally difficult time making govt-oriended businesses mesh with private sector-oriented colleagues. A good example is Booze Allen, which finally had to split rather than try yet again to make this work. CSC never made it work either, and there is little reason to hope that third time's the charm, or so it seems. They can hope for the best

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