Computer Sciences Corporation of Falls Church, VA announced on May 19 that its Board of Directors has unanimously approved a plan to separate the company into two publicly traded, pure-play leaders: one to serve commercial and government clients globally and one to serve public sector clients in the U.S.
“CSC began its turnaround three years go,” said CEO Mike Lawrie. “That turnaround has progressed strongly, and our focus now turns to positioning the business for long-term growth and leadership. The best way to accelerate that transformation is by separating the company into two businesses, each uniquely positioned to lead its market by focusing strongly on the needs of its clients.”
About the companies
- CSC – Global Commercialwill move forward as the trusted information technology (IT) services and solutions partner for Fortune 1,000 companies and non-U.S. government clients, leveraging its industry, infrastructure and consulting expertise to lead customers on their digital transformation journey. With $8.1 billion in FY 15 revenue, CSC Global Commercial will have more than 1,000 customers (including 175 of the Fortune 500), 51,000 employees and 34 delivery centers globally. The business will retain its leadership status across multiple markets, along with innovative offerings and industry-leading strategic partnerships.
- CSC – U.S. Public Sectorwill be a top three provider of mission-specific IT, infrastructure and business services to U.S. federal, state and defense agencies. Building on more than a half-century of government service, the business also will be a leading IT services provider to national security. The public sector business had FY 15 revenues of $4.1 billion and employs 14,000 people, including 3,500 U.S. military veterans.
Rationale for the separation
CSC’s Board of Directors made the decision to separate the commercial and public sector businesses as a result of several factors.
- The “Get Fit” phase of the company’s turnaround has been successfully completed. Over the last three years, CSC has implemented a common operating model, streamlined its cost structure, improved its go-to-market performance and brought in proven leadership.
- At the same time, markets have evolved rapidly, with diverging opportunities and challenges. On the commercial side, clients seek partners with a deep understanding of their business who can help lead their digital transformations. In the U.S. public sector, technology demands are increasing, and clients want providers with specific experience in government-focused innovation. By separating, each business will have the scale – among the largest in their respective categories – as well as the focus to meet unique customer needs and market requirements.
- The two segments have different growth profiles and cash flow dynamics. The separation will allow both companies to better optimize their capital strategies and cost structures, and will provide investors with distinct long-term investment opportunities.
- The market for talent has become highly competitive. As two independent, focused and market-leading organizations, each business will be better positioned to recruit and retain the best IT talent.
Based on these factors, CSC’s Board of Directors believes that the next phase of the turnaround, focused on growth, will be enhanced by the ability of the two businesses to function as pure plays focused exclusively on their respective customer segments.
“Our analysis shows significant benefits of going with a pure-play strategy,” Lawrie noted. “We expect this change to enable both businesses to enhance innovation and improve delivery, in ways that are consistent with the rate and pace of the markets they serve.”
CSC will operate on a “business as usual” basis while details of the separation – including leadership, locations and other details – are being finalized. When the separation is concluded, it is expected that both businesses will have:
- Operational and financial scale;
- Adequate capital, consistent with investment-grade credit profiles; and
- Industry-leading partnerships – built on CSC’s existing partner ecosystem – that have proven instrumental in the company’s recent success.
“During the first three years of CSC’s turnaround, we benefitted from taking a unified approach,” Lawrie concluded. “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, able to move decisively to capture the opportunities in front of them.”