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By Nick Wakeman

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Nick Wakeman

CSC takes final steps toward split, SRA acquisition

Computer Sciences Corp. has entered the home stretch in its push split in two and spin off its government business into a new, publicly traded company.

The CSC board has given its final approval to split the public sector business and pay a special cash dividend of $10.50 a share.

The new company will be known as CSRA Inc., which combines the CSC name with the name of SRA International, the company is acquiring.

The SRA acquisition was announced in August and will close on Nov. 30, the same day that CSRA stock will begin to trade on the New York Stock Exchange.

On Nov. 27, CSC shareholders will hold one share of CSRA stock for each share of CSC stock they hold as of Nov. 18. On Nov. 30, shareholders will receive $2.25 dividend from CSC for each share they hold and $8.25 from CSRA for each share.

The company also announced that David Keffer, SRA’s chief financial officer, will be the executive vice president and CFO of CSRA.

So far, other senior executive positions have not been announced.

In an investor presentation on Thursday, the company released more financial data about CSRA, some of which we already knew: $5.5 billion in revenue, 14 percent operating margins and 19,000 employees. The company has access to more than 100 contract vehicles and is working on 2,000 projects.

Its biggest contract is the NSA Groundbreaker, which accounts for 7 percent of revenue. The next biggest ones are Flight School 21, Warfighter Focus (it is teamed with Raytheon) and TSA ITIPS. Those contracts account for about 3 percent to 5 percent of revenue.

The company also claims that its recompete win rate has grown to 90 percent from 54 percent three years ago.

CSRA will have a backlog of $14 billion and it has $2.4 billion in pending extensions and awards expected in fiscal 2016 first quarter. Its opportunity pipeline is $23 billion.

Its business mix is 53 percent health and civil and defense and intel at 47 percent for fiscal 2015. The goal is health and civil to be even larger in fiscal 2019.

The company is targeting 2 percent to 3 percent annual growth rate through 2019.

CSRA told investors that its four advantages over competitors are its business development efficiency, reduced overhead, a flexible service models and low-cost delivery.

Flexible service models include outcome-based, as a service models, pay as you go offerings, multi-channel contracting, and rate structure aligned with bids.

Its low cost delivery model includes an integrated technology center in Bossier City, La. It currently has 300 employees working there now working on infrastructure, applications, business process services, cyber, and data science related projects and services. By mid-2018, the company expects to have 1,500 employees there.

Building the center included receiving $116 million in incentives from Louisiana as well as partnerships with Louisiana Tech and Northwestern University.

In building its pipeline, the company said that today it has $23 billion in new business opportunities. It’ll likely bid on $10 billion of those and win 25 percent of what it bids on. These are new business opportunities.

The goal is a pipeline that starts with $25 billion in pipeline, bidding on $16 billion and winning 25 percent of those. That’s $4 billion in contract awards, which translates into $800 million in new business revenue annually.

So, that’s what we know right now. I’m still very interested in know more of the senior leadership team.

It’s noteworthy that Keffer, an SRA exec, is the new CFO. Both CSC and SRA have talked about the transaction as a merger, though technically it is an acquisition, because CSC is taking on about $1 billion in SRA debt and paying $390 million to SRA shareholders. SRA shareholders will end up with about 15 percent of CSRA shares.

So, it’s an acquisition, but if we see more SRA execs taking senior spots in operations and business development, you could argue that it is a cultural merger.

The new name emphasizes that merger perspective in that it puts CSC and SRA into the name. Executives told me before the name was announced that they were looking for a way to recognize the legacy of both companies.

So far, so good.

Posted by Nick Wakeman on Nov 05, 2015 at 9:33 AM

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