Equifax Inc. agreed to buy Computer Sciences Corp.’s credit-services business for $1 billion in cash, giving the company ownership of a business it had been helping operate since 1988. The shares of both companies gained.
The transaction will generate incremental net operating revenue next year of $115 million to $125 million and earnings before interest, taxes, depreciation and amortization of $105 million to $110 million for Equifax, the Atlanta-based company said today in a statement.
“What this is is a very, very low risk, 12 percent accretive deal for Equifax -- it’s a great deal,” said Carter Malloy, an analyst at Stephens Capital Management. “Equifax was already doing all the work; they were just getting a minority revenue share. Now they’re just buying over the rest of the revenues.”
Equifax’s stock advanced 4.2 percent to $53.38 at the close in New York, the biggest jump since April. The stock has gained 38 percent so far this year. CSC, up 66 percent this year, rose 3.2 percent to $39.27 today.
The transaction is expected to be completed by the end of the year, and the proceeds will be used for stock buybacks and to fund the pension plan, Falls Church, Virginia-based CSC said in a separate statement. The deal is CSC’s second divestiture in six weeks, part of a continuing turnaround effort.
CSC Chief Executive Officer Mike Lawrie, named to the post in February, has been moving away from providing infrastructure and focusing on industry software and services, with plans to build out the company’s cloud, cyber and big-data offerings into businesses with as much as $1.5 billion in annual revenue.
“I’m not a big believer of keeping businesses in a portfolio just for the sake of revenue or profit,” Lawrie said in an interview. “With all the work that we’ve already announced and most of our cost cutting efforts under way, we felt it was an ideal time to do this.”
Lawrie said the credit-services sale is likely to be the largest of his turnaround plan. In October, the company agreed to sell the consulting and systems-integration services portion of its business in Italy for an undisclosed sum.
Equifax, one of the most commonly used consumer credit agencies in the U.S., has data on more than 500 million consumers and 81 million businesses worldwide.
Equifax has announced the completion of 11 deals in the past five years for a total value of $1.2 billion, according to data compiled by Bloomberg. The average disclosed deal size has been about $300 million.
Richard Smith, Equifax’s CEO, said in October that he was interested in working with Lawrie to negotiate a deal with CSC for the credit-services unit.
The credit-services unit owns credit files in 15 states representing 20 percent of the U.S. population, CSC said. The unit is the largest independent U.S. consumer credit reporting agency and has been affiliated with Equifax for more than 20 years.