Computer Sciences CorporationNYSE
Computer Sciences Goes Ex- Buy Before The Spin
Alpha Gen Capital
Alpha Gen Capital
Wed, May 25, 9:49 AM
- HP Enterprise (HPE +11.3%) and Computer Sciences (CSC +34.2%) are leading tech gainers today after each posted earnings beats and said they were merging CSC with HPE's spun-off enterprise services unit.
- That deal's likely good for HPE shareholders, Brean Capital says, and the combo of legacy enterprise sales/service with CSC's innovation pipeline should be able to gain share in IT services.
- Analyst Ananda Baruah maintained a Hold on HPE: “For the equity, after watching a chunk of our coverage struggle to execute traditional services businesses and get valued on the remainder of the businesses, we believe that HPE will be both more focused internally and viewed differently (more favorably) by investors for having done this deal."
- Mizuho (Neutral) has boosted its price target on HPE to $16 from $13, and FBN Securities (Outperform) has raised its target to $21 -- the latter target implying about 16% upside from today's higher price. Needham has upgraded from Hold to Buy.
- Meanwhile, Global Equities' Trip Chowdhry isn't high on the deal and the job cuts required (expecting 65,000 layoffs at the combined company): "Two bad assets does not make one good asset." Chowdhry believes the market in which the companies play is going to shrink by 40-60%.
Tue, May 24, 4:43 PM
- HP Enterprise (NYSE:HPE) and Computer Sciences (NYSE:CSC) expect the spinoff of HPE's Enterprise Services unit and its related merger with CSC to be finished by March 31, 2017. CSC chairman/CEO Mike Lawrie will be chairman/CEO of the new company, and HPE chief Meg Whitman a board member. In line with the company's ownership, there will be a 50/50 split between directors nominated by HPE and CSC.
- HPE estimates the transaction will be worth $8.5B to its shareholders, with $4.5B delivered from its equity stake in the new company, $1.5B from a cash dividend, and $2.5B from the assumption of debt and other liabilities. With Enterprise Services and CSC competing in many of the same IT services markets, the companies expect a $1.5B/year cost synergy run rate a year after the merger closes. Many of those markets have been hurt by cloud services adoption.
- Along with the spinoff/merger, HPE announces it has added $3B to its buyback authorization, raising its total funds to $4.8B. Almost no buybacks occurred in FQ2.
Top-line performance: HPE's revenue growth (+1% Y/Y, +5% excluding forex) was positive on a dollar basis for the first time in five years. Enterprise Group (IT hardware and related services) revenue rose 7% Y/Y in FQ2 (better than expected). Enterprise Services fell 2% to $4.7B (a smaller decline than in recent quarters). Software fell 13% to $774M. Financial Services fell 2% to $788M.
Within Enterprise Group, server revenue rose 7% (share gains), storage rose 2%, networking (boosted by the Aruba Networks acquisition) rose 57%, and tech services fell 6%. Within software, license revenue (closely watched) fell 12%, SaaS revenue fell 11%, and professional services fell 3%.
- Financials: A mix shift towards hardware from software led non-GAAP op. margin to drop to 7.9% from 8.4% a year ago. Free cash flow totaled more than $500M. HPE ended FQ2 with $9B in cash and $16.2B in debt.
- HPE +8.9% after hours to $17.70. CSC +18.7% to $42.31. A conference call discussing both HPE's earnings and the CSC transaction is underway.
- HPE's results/guidance, earnings release
Mon, May 23, 11:22 AM
- CSC has agreed to acquire cloud-tech firm Aspediens and add it to its ServiceNow practice.
- CSC will add Aspediens (an existing ServiceNow partner) to its Fruition Partners business, a platform that also includes UXC Keystone.
- The move makes CSC the world's No. 1 ServiceNow integrator, it says.
- Aspediens was founded in 2008. The deal is expected to close June 30.
Mon, Jan. 18, 3:59 AM
- Computer Sciences (NYSE:CSC) said its offer for the company has become unconditional and urged any Xchanging (OTC:XCNGF) shareholders who have not accepted the offer to do so.
- Xchanging also advised investors to accept the offer last week, warning shareholders could face the prospect of losing the chance to sell their shareholdings if they failed to do so.
- Computer Sciences' offer values Xchanging at around £488M.
- Previously: CSC makes cash offer for Xchanging (Dec. 09 2015)
Dec. 10, 2015, 4:29 AM
- Insurance software company Ebix (NASDAQ:EBIX) is still interested in making an offer for Xchanging (OTC:XCNGF), a day after Computer Sciences (NYSE:CSC) agreed to buy the British outsourcing company for about £480M.
- Last month, Ebix made a £450M takeover approach for Xchanging, which offers services ranging from back-office invoice processing to insurance claims settlement.
- Previously: CSC makes cash offer for Xchanging (Dec. 09 2015)
Dec. 9, 2015, 4:28 AM
- Computer Sciences (NYSE:CSC) has agreed to buy Xchanging (OTC:XCNGF) for about £480M ($721M), beating out other suitors in a bidding war for the insurance-focused outsourcing company.
- The acquisition is expected to close in the next six months pending receipt of regulatory approvals.
- Xchanging +8.8% in London.
Nov. 24, 2015, 5:51 PM
- Less than two months after stating it has entered talks to buy Australian IT services firm UXC (OTC:UXCLF), Computer Sciences (NYSE:CSC) has confirmed it will do so.
- CSC is paying A$1.22/share, or A$427.6M ($307.9M), in cash. The deal is expected to close by February. UXC had FY15 revenue of $493.9M, and employs nearly 3K workers. CSC declares the company to be "a regional leader in enterprise application capabilities, including Microsoft Dynamics, SAP, Oracle and ServiceNow implementations."
- The announcement comes three days before CSC's breakup into a commercial IT services firm (will include UXC) and a U.S. public sector IT services firm (to be known as CSRA) goes into effect.
- Yesterday: CSRA joining S&P 500; CSC entering S&P 400
Nov. 16, 2015, 10:17 AM
- Insurance software/Web services firm Ebix (EBIX -2%) states it's interested in making a 175 pence/share, or $685M, offer for U.K. software outsourcing/BPO services firm Xchanging (OTC:XCNGF). Such a bid would top a 170 pence/share offer Computer Sciences (CSC +0.4%) made last week, as well as the 160 pence/share deal Xchanging previously agreed to with peer Capita.
- Both Ebix ($1.12B market cap) and CSC are offering cash for Xchanging. Ebix CEO Robin Raina: "We see substantial synergies, economies of scale and growth potential for the combined business. Our interest in making an offer for Xchanging plc is borne out of our belief that a combination of the two companies could be substantially and immediately accretive to Ebix's EPS while also adhering to our other stringent criteria."
- Xchanging is up 5.6% in London to 178.00 pence, as markets bet the bidding war isn't over. Ebix, which recently shot higher following a Q3 beat, is down moderately. Per U.K. law, the company has until Dec. 9 to "announce a firm intention" to bid for Xchanging, or to declare it doesn't intend to do so.
Nov. 12, 2015, 12:56 PM
- Computer Sciences (CSC -0.6%) has offered to buy London-based IT outsourcing, BPO, and procurement services firm Xchanging (OTC:XCNGF) for 170 pence/share, or $640M. The price represents a 6% premium to Xchanging's existing 160 pence/share deal to be acquired by peer Capita.
- CSC has already made a string of deals ahead of its Nov. 27 breakup into a U.S. public sector IT services firm (to be known as CSRA) and commercial IT services firm (keeping the current name). It has acquired ServiceNow partner Fruition Partners and fintech services firm Finetix, entered talks to buy Australian IT services firm UXC for ~$300M, and agreed to merge the U.S. public sector unit with peer SRA.
- Xchanging rose to 170.74 in London in response to CSC's offer, as markets bet on a higher bid arriving. Shore Capital's Robin Speakman argues Xchanging's insurance services business and Xuber insurance software are driving M&A interest. "I think that the franchise of this business, particularly in the insurance world, is worth more than 170 pence."
Oct. 5, 2015, 5:37 PM
- Computer Sciences (NYSE:CSC) has entered into exclusive talks to buy UXC Limited (OTC:UXCLF), Australia's biggest independent/publicly-owned IT services firm, for A$428M ($300M).
- The deal price is equal to A$1.26/share - $0.07 below where UXC closed today in Sydney, but well above where shares traded a few months ago. The deal is subject to a 5-week due diligence period, as well as board and regulatory approvals. If all goes well, CSC expects to close in Feb. 2016.
- CSC has been in an M&A-hungry mood ahead of the planned split of its commercial IT services ops from its U.S. public sector ops (set for later this month). In August, the company announced the purchase of ServiceNow partner Fruition Partners and financial IT services firm Fixnetix, as well as a merger between its U.S. public sector unit and peer SRA.
Aug. 31, 2015, 5:20 PM
- Ahead of the spinoff of its U.S. public sector ops from its commercial IT services arm, Computer Sciences (NYSE:CSC) is merging the former with SRA, a fellow government IT services provider. SRA shareholders, which include P-E firm Providence Equity, will own 15.3% of the post-merger company, and receive a $390M cash payout.
- The combined company had FY15 (ended in March) revenue of $5.5B - with CSC's public sector ops having posted revenue of $4.1B, that implies SRA revenue of $1.4B. Roughly 3/4 of the post-merger firm's revenue will come from "cybersecurity, software development, cloud and IT infrastructure."
- CSC CEO Mike Lawrie will be the company's chairman, and public sector division chief Lawrence Prior its CEO. The merger is expected to close by the end of November, following the spinoff.
- Separately, CSC announced today it won a contract with Microsoft and Amazon to consolidate the FAA's data centers and migrate the agency's data/systems to a hybrid cloud. The deal has an initial value of $108.9M, but could reach $1B over 10 years.
Aug. 11, 2015, 4:59 PM
- Along with its FQ1 results, Computer Sciences (NYSE:CSC) announces it's buying Fruition Partners, the biggest management consulting firm exclusively handling deployments of cloud IT service management (ITSM) software leader ServiceNow's (NYSE:NOW) products, and Fixnetix, a provider of IT systems management services for financial industry trading desks. Terms for both deals are undisclosed.
- ServiceNow has been seeing rapid growth as it grabs ITSM software share from on-premise software vendors. CSC notes Fruition is "the only ServiceNow Master Solutions Partner operating in both North America and Europe," and plans to sell its services via CSC's 1,000-person salesforce.
- Regarding Fixnetix, CSC states the company "will be a key component to the implementation of our infrastructure strategy and will advance CSC as a leader in providing managed services to capital markets firms throughout the world." Fixnetix is based in London, and also operates in NYC, Tokyo, Boston, and Chicago. Both purchases bolster CSC's commercial IT services ops before they're split from the company's U.S. public sector ops.
- Following its FQ1 EPS beat and revenue miss, CSC is reiterating FY16 (ends March '16) guidance for EPS from continuing ops of $4.75-$5.05. Consensus is at $4.85.
- Global Business Services revenue fell 7.5% Y/Y in FQ1 to $919M. Global Infrastructure Services fell 15.3% to $885M. North American fell 6% to $957M. Nonetheless, op. margin rose 140 bps Y/Y to 10.8%, and free cash flow by $50M to $120M. $118M was spent on buybacks.
- CSC has risen to $67.00 in AH trading.
- CSC's FQ1 results, PR
Jun. 4, 2015, 6:41 PM
- Reuters reports government IT contractors CACI, Booz Allen (NYSE:BAH), and Leidos (NYSE:LDOS) have "held exploratory discussions" about buying Computer Sciences' (NYSE:CSC) U.S. public sector IT services unit, which is set to be split off from its commercial IT services unit.
- The news service cautions discussions are in their early stages. Bloomberg reported earlier this afternoon HP was close to a deal to buy CSC last month before walking away.
- CSC's public sector unit had FY15 (ended April 3) revenue of $4.06B (-1% Y/Y), and op. income of $591M.
- CSC +0.4% AH to $68.00.
Jun. 4, 2015, 4:30 PM
- HP (NYSE:HPQ) was "nearing a deal to acquire Computer Sciences Corp. (NYSE:CSC) last month until the talks broke down," Bloomberg reports. According to one source, HP "doesn’t intend to revisit" deal talks.
- With a current market cap of $9.7B (an M&A premium could have pushed its valuation above $11B), CSC would at least have been HP's biggest acquisition since the ill-fated 2011 Autonomy purchase. CSC, which has reportedly tried to sell itself in prior years as well, is 2 weeks removed from announcing it's breaking up into a commercial IT services firm and a U.S. public sector services firm.
- HP, whose own breakup takes effect in 5 months, has suggested its enterprise ops (to be known as Hewlett-Packard Enterprise post-breakup) could make big purchases - the company recently closed a $3B deal to buy Wi-Fi hardware/software vendor Aruba Networks. Raymond James speculated today HP will buy EMC (current market cap of $52.4B), in part to get hold of VMware (NYSE:VMW).
- Separately, HP says it will show off a prototype of its cutting-edge Machine computer architecture next year; the system will pack 2,500 CPU cores and 320TB of DRAM within a single server rack. By 2020, HP wants to offer Machine servers relying on Memristors, a next-gen memory format that would replace both DRAM and hard drives/NAND flash.
May 19, 2015, 4:46 PM
- Confirming last week's Reuters report, Computer Sciences (NYSE:CSC) announces (in tandem with its FQ4 report) it plans to split its commercial IT services and U.S. public sector ops into separate, publicly-traded, companies. The former had FY15 revenue of $8.1B, and the latter revenue of $4.1B.
- The split, like CSC's $10.50/share special dividend, is expected to occur by the end of October.
- CSC is guiding for FY16 (ends March '15) EPS from continuing ops of $4.75-$5.05, favorable to a $4.80 consensus at a $4.90 midpoint.
- FQ4 revenue fell 12.6% Y/Y in actual dollars, and 8% in constant currency. Global business solutions revenue -14.9% Y/Y to $980M; global infrastructure services -20.8% to $929M; North American public sector -0.4% to $1B.
- $224M was spent to buy back 3.2M shares in FQ4. FY15 free cash flow totaled $717M, +4% Y/Y.
- CSC has risen to $71.00 AH.
- FQ4 results, PR
May 14, 2015, 5:18 PM
- Sources tell Reuters Computer Sciences (NYSE:CSC) is "planning to separate its government business from its commercial information technology division," and that an announcement could come as soon as Tuesday's FQ4 report.
- The IT services firm is still open to acquisitions, but now reportedly considers a split "the most attractive and tax-efficient" way to create value for shareholders. The decision is said to follow several attempts by CSC to sell itself over the last several years.
- CSC closed up 4.3% in response to Reuters' report. They're $6.01 below a 52-week high of $73.29.
- Earlier: CSC reportedly plans breakup