Computer Sciences to Split to Two Publicly Traded Companies

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Computer Sciences Corp. is splitting into two publicly-traded companies after several attempts to sell itself in recent years as demand for its technology consulting services waned.

One company will focus on its U.S. public-sector division and the other on commercial and foreign governments, CSC said in a statement Tuesday. It also plans to pay a special cash dividend to shareholders of $10.50 a share at the closing, expected by October, The stock climbed as much as 7.9 percent to $73 in late trading.

Traditionally focused on infrastructure, CSC has continued to struggle under Chief Executive Officer Mike Lawrie, who took over in 2012 and tried to reinvent it as a software and services company. Customer demand has tumbled and its federal business has suffered from a drop in government funding.

“During the first three years of CSC’s turnaround, we benefited from taking a unified approach,” Lawrie said in the statement. “The progress we’ve made, coupled with the changing demands of the market, make this a good time to give these two businesses room to thrive as independent companies.”

Lawrie, a former partner at activist firm ValueAct Capital Management, previously ran London-based software company Misys Plc, which was sold. At CSC, he had tried to navigate a broad-based shift in the industry to cloud computing, where customers get software and services online, stored in rented data centers, instead of having their own technology infrastructure on site.

CSC joins the ranks of tech companies that have chosen to split up into more focused businesses, including EBay Inc., Hewlett-Packard Co. and Symantec Corp.

Sales Miss Estimates

The restructuring and repositioning of various business units have prompted customer demand to wane, while other contracts have ended. Sales in the fiscal fourth quarter ended April 3 dropped 13 percent to $2.91 billion, according to a separate statement. That missed the $2.96 billion average of analysts’ estimates compiled by Bloomberg, marking the third straight quarter sales fell short of projections.

CSC, based in Falls Church, Virginia, contacted private-equity firms including Blackstone Group and Bain Capital to gauge their interest in a leveraged buyout, people familiar with the matter said in September. In February, Jana Partners disclosed an activist stake, saying it had held talks with CSC about its strategic alternatives.

CSC shares, which dropped 0.9 percent to close at $67.66 Tuesday in New York, have gained 7.3 percent this year, boosted by Jana’s activism and reports of a split last week.

Such a separation may see CSC shares “revalue” to the low $80s, analysts at Wells Fargo Securities led by Ed Caso wrote in a May 15 note. The company in parts could be valued between $75 and $87 a share, Cowen & Co. analyst Moshe Katri estimated in another May 15 note.