CSC Buyout Speculation Heats Up As Stock Climbs 7 Percent

Once again, reports have emerged surrounding Computer Sciences Corp. weighing its buyout options, causing the company’s stock to climb 7 percent Monday.

The stock price closed on Friday at $66.93 and jumped nearly 10 points over the weekend, opening at $71.50 Monday morning in reaction to the report. The stock continued to climb to as high as $73.22 at midday Monday before tapering off.

The stock rose after a story by Dealreporter broke on Friday citing unnamed sources, stating that CSC is in talks over a two-buyer buyout where the North American public-sector division of CSC would be acquired by a private equity firm, while CSC’s commercial portion would be sold to a foreign strategic buyer.

[Related: CSC Knocks On Private Equity Doors, Weighs Leveraged Buyout]

CSC opted not to speak on the matter as a spokesperson told CRN, "We do not comment on rumor and speculation."

Similar reports emerged in late September of the company exploring leveraged buyout options with multiple private equity firms, including Blackstone Group and Bain Capital.

A sale of CSC would be the largest leveraged buyout since Dell went private for $16 billion in 2013. CSC is No. 4 on CRN's 2014 SP500 list with $12.6 billion in annual revenue for the 12 months ended Jan. 2.

CSC has been in a turnaround period under CEO Mike Lawrie since he took the position in March 2012, and has been going through a transition period under his watch.

"The turnaround is continuing, but I think the results overall since Lawrie has been in charge have shown you how difficult it is to turn around any large company," said Gard Little, an analyst for research firm IDC. "I think there was an expectation that things would move more quickly, however, it’s a long, hard effort to make this turnaround. Having said that, I’m positive about Lawrie and the efforts to turn around the company."

Just two weeks ago during the company’s most recent quarterly earnings call, Lawrie blamed "execution missteps" for a revenue shortfall. CSC's reporting sales of $2.95 billion for its third fiscal quarter ended Jan. 2 fell 7 percent below the Wall Street consensus of $3.18 billion, and 8 percent below the $3.22 billion in the same period one year ago.

During the call with analysts, Lawrie said the drop in sales was "primarily due to some unforeseen delays and execution issues" around a number of deals in the quarter.

"We have to take responsibility for our execution issues," Lawrie said during the earnings call. "It's not a market issue. It's not a contract issue. It's not a demand issue. It is an execution issue. [Going forward], we will not have so many execution missteps. We won't have some of these execution gaps as we go into the fourth quarter."

Despite the surprising and candid remarks by Lawrie, IDC's Little doesn’t put too much credence into a report of a buyout.

"There are rumors all the time," said Little. "I've been hearing CSC buyout rumors since probably 1990, so I don't put too much into that. I've been hearing that forever. People see the logic in splitting up the company or it going somewhere else, but I don't put much stock in it."

PUBLISHED FEB. 23, 2015