Combination Will Create Leading Pure-Play
Government I.T. Business in the U.S.
New Company Will Offer Unique Focus, Scale,
Financial Strength, Technical Depth and Market Agility
Strategic Combination Expected to Drive
Significant Value for Clients and Shareholders
Together, Computer Sciences Government
Services and SRA Poised to Create New Opportunities for Employees
of Both Firms
CSC (NYSE: CSC) today announced that it has entered into a
definitive agreement to combine its government services unit,
Computer Sciences Government Services (CSGov), with SRA upon the
spin-off of that unit, plans for which were announced in May.
SRA is owned by a shareholder group led by Providence Equity
Partners and SRA’s founder, Dr. Ernst Volgenau, as well as members
of its management team. The transaction with SRA is targeted to
close before the end of November 2015, upon the separation of CSC’s
government services unit. That separation is intended to qualify as
a tax-free transaction to CSC shareholders.
The combined company, to be named prior to closing, will become
the largest pure-play IT services provider serving the U.S.
government sector, with combined FY15 revenues of approximately
$5.5 billion, nearly 19,000 employees and among the industry’s
leading profit margins.
“The combination of CSGov and SRA is an important strategic move
to best position the combined company as the government IT services
industry consolidates,” said Mike Lawrie, CSC’s president and CEO.
“We believe CSGov’s next-gen software platforms and solutions –
together with SRA’s go-to-market capabilities and customer intimacy
– will deliver significant benefits to U.S. government clients,
open new opportunities for employees of both firms and create
substantial value for shareholders.”
The combination of CSGov and SRA will bring together highly
complementary IT capabilities, with approximately three-quarters of
revenues generated from cybersecurity, software development, cloud
and IT infrastructure. Additional revenues will be derived from
domain-specific professional services, including intelligence
analysis, bioinformatics and health sciences, energy and
environmental consulting, and enterprise planning and resource
management.
“We are delighted to enter into a business combination that is
strategically compelling, and one that strengthens the next
generation IT capabilities the combined organization can offer to
its customers,” said Chris Ragona, managing director of Providence
Equity Partners, SRA’s controlling shareholder. “The two
businesses are a natural fit and we are excited by the value
creation opportunities that can be realized through this
combination.”
Summary of Strategic Benefits
The combination of CSGov and SRA is expected to provide clients,
investors and employees of both companies with significant
benefits.
- Vastly expanded portfolio of
expertise: Complementary capabilities in cloud computing, cyber
security, IT infrastructure, mobility, data analytics, and software
and systems engineering. Strong relationships within the Department
of Defense (DoD), homeland security, intelligence and health IT
market segments with access to 150 contract vehicles, 1,500 active
projects, and a combined 90-plus years of experience in the
government services sector.
- Cost competitiveness: Running
parallel business transformations over the past three years, CSC
and SRA each have become highly tuned and cost-competitive, with a
clear focus on next generation IT services and solutions. This
transaction is expected to generate additional cost synergies.
- Strong financials: Among the
leading profit margins in the industry, along with strong cash flow
generation to support planned dividends as well as rapid
deleveraging. The transaction will preserve the tax-free nature of
the previously announced CSGov spin-off.
- Positive company cultures: The
two companies share common values, including a relentless focus on
the mission and needs of their U.S. government clients.
- Positioning for future growth
opportunities: Given its scope, scale and financials, the
combined company will be well positioned to capitalize on future
growth opportunities.
- Industry-leading talent: Skilled
staff of 18,600 employees, with strong leadership and deep
technical expertise in areas of growing demand.
Transaction Details
The combination will be structured to preserve the tax-free
nature of CSC’s previously announced spin-off of CSGov. The key
details regarding the transaction are as follows:
- CSGov’s shareholders will own 84.68
percent of the combined company.
- SRA’s shareholders will own 15.32
percent of the combined company and will receive $390 million of
cash as part of the transaction.
- CSGov’s pro forma net debt upon
consummation of the spin-off and completion of the combination with
SRA is expected to be approximately $2.7 billion, including debt
incurred to fund CSC’s $10.50 per share special cash dividend to
CSC’s shareholders at the separation, the $390 million of cash to
be paid to SRA’s shareholders and the refinancing of SRA’s existing
net debt of $1.0 billion.
- MUFG, through The Bank of
Tokyo-Mitsubishi UFJ, Ltd., and RBC Capital Markets provided
an underwritten financing commitment in the amount of $3.5 billion
(inclusive of $500 million in undrawn revolving credit facilities)
to CSGov in order to effect the spin-off from CSC, as well as to
fund the transaction with SRA and refinance SRA’s existing
indebtedness.
- No shareholder vote of CSC is required,
and SRA has received the necessary shareholder approvals to
complete the transaction. CSGov’s combination with SRA is subject
to customary regulatory approvals. CSGov will amend its filings
with the U.S. Securities and Exchange Commission to reflect the
contemplated transaction with SRA.
Governance and Management
Mike Lawrie will serve as Chairman of the Board of the combined
company. Lawrence Prior, executive vice president and general
manager of CSC’s North American Public Sector unit, will be chief
executive officer of the company upon completion of the spin-off
and transaction with SRA. Additional members of the new company’s
management team drawn from both companies will be named
at later dates as the integration planning progresses.
The headquarters of the combined company is expected to remain
in Northern Virginia.
Advisors
Guggenheim Securities is serving as financial advisor to CSC and
CSGov. Other financial advisory services have been provided to CSC
by RBC Capital Markets. Allen & Overy is serving as legal
advisor. Stone Key Partners and Citigroup Global Markets are
serving as financial advisors to SRA and Providence Equity.
Debevoise & Plimpton is serving as legal advisor to SRA and
Providence Equity.
Joint Conference Call and Webcast
Senior management from CSC and SRA will host a conference call
and webcast at 5:15 p.m. ET today to discuss this
announcement. The dial-in number for domestic callers is
877-604-9673. Callers who reside outside of the United States or
Canada should dial 719-325-4818. The passcode for all participants
is 5818572. The webcast audio and any presentation slides will be
available on the investor relations website of CSC and SRA.
A replay of the conference call will be available from
approximately two hours after the conclusion of the call
until September 7, 2015. The replay dial-in number is
888-203-1112 for domestic callers and 719-457-0820 for callers who
reside outside of the United States and Canada. The replay passcode
is 5818572. A replay of this webcast will also be available on the
investor relations website of CSC and SRA.
About SRA
SRA is a leading provider of sophisticated information
technology and professional services to the U.S. federal
government. Our services help our government customers address
complex IT needs in order to achieve their missions. We are
inspired by our customers’ missions and strive to provide the best
people, working together to generate the best ideas, to deliver the
best possible performance - all driven by our enduring values of
Honesty and Service®. SRA was founded in 1978. We are headquartered
in Fairfax, VA and employ approximately 5,600
professionals. Go to: www.sra.com.
About CSC
CSC is a global leader of next generation information technology
(IT) services and solutions. The Company's mission is to enable
superior returns on our clients’ technology investments through
best-in-class industry solutions, domain expertise and global
scale. CSC has approximately 70,000 employees and reported revenue
of $11.7 billion for the 12 months ended July 3, 2015. For more
information, visit the company's website at www.csc.com.
Forward-looking Statements
All statements in this press release and in all future press
releases that do not directly and exclusively relate to historical
facts constitute “forward-looking statements.” These statements
represent the Company’s intentions, plans, expectations and
beliefs, and are subject to risks, uncertainties and other factors,
many of which are outside the Company’s control. These factors
could cause actual results to differ materially from such
forward-looking statements. For a written description of these
factors, see the section titled “Risk Factors” in CSC’s Form 10-K
for the fiscal year ended April 3, 2015 and any updating
information in subsequent SEC filings. The Company disclaims any
intention or obligation to update these forward-looking statements
whether as a result of subsequent event or otherwise, except as
required by law.
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CSCRich Adamonis, 862-228-3481Global Media
Relationsradamonis@csc.comorCSGovHeather Williams,
703-641-2217Communicationshwilliams22@csc.comorCSCGeorge Price,
703-641-3842Investor Relationsgprice4@csc.com
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