Tuesday, 30 September 2014

Bloomberg reports that Lawrie is actively looking for buyers for CSC

Below is a report from Bloomberg dated 29 September . The full story can be found on:



<< Computer Sciences Corp. (CSC), a technology consultant for governments and companies, has contacted private-equity firms including Blackstone Group LP (BX) and Bain Capital LLC to gauge their interest in a leveraged buyout, people with knowledge of the matter said.
The talks are at an early stage and may not result in a deal, according to the people, who asked not to be named because the negotiations are private. CSC, as the company is known, provides information technology services to clients including NASA and Avis Budget Group Inc.
CSC rose 5.3 percent to $59.62 in New York trading yesterday, giving the company a market value of about $8.65 billion. If it goes private, CSC’s would be the largest leveraged buyout since Michael Dell and Silver Lake Management LLC acquired Dell Inc. for more than $16 billion last year.
CSC Chief Executive Officer Mike Lawrie is trying to convince potential suitors that a turnaround at the company, which he took over in 2012, is halfway done, one of the people said. Lawrie is arguing that buyers could benefit as the reorganization continues, the person said.
Private-equity funds view Falls Church, Virginia-based CSC as a potentially cheap buyout based on enterprise value to earnings before interest, taxes, depreciation and amortization, though are concerned by its cash flow and slower-growth business units, one person said.
The buyout funds are once again spending billions on enterprise technology businesses. Tibco Software Inc. announced yesterday it reached a deal to be bought by Vista Equity Partners for $4.3 billion, following Compuware Corp.’s $2.5 billion buyout by Thoma Bravo LLC earlier this month.

 

Data Centers

Rich Adamonis, a spokesman for CSC, said the company doesn’t comment on market rumors. Christine Anderson, a spokeswoman for Blackstone, declined to comment, as did Charlyn Lusk, a spokeswoman for Bain at Stanton Public Relations & Marketing.
CSC runs data centers for the U.S. government and also has a separate commercial business for consumer, financial, defense and health-care companies. A deal could be structured where the businesses are split, with a private-equity firm buying one unit and a strategic suitor buying the other, one of the people said.
The company said Sept. 16 its controller and principal accounting officer, Thomas Colan, is stepping down for personal reasons after two years in the role. Colan will assist in the transition of his interim replacement, Michael Sweeney, according to a statement.

Third Attempt

A spokesman for the company said then that Colan’s departure isn’t related to the U.S. Securities and Exchange Commission’s investigation into the company’s accounting, which started in January 2011, before Colan joined CSC.
This is at least the third time since 2005 that CSC has fielded interest from possible buyers.
The company said in April 2006 it was exploring options including a sale after the Wall Street Journal reported it was talking to a number of parties. In November of the previous year, CSC nearly sold itself to a consortium of Blackstone, Warburg Pincus LLC, TPG Capital Management LP and Lockheed Martin Corp. before the talks ended, the Journal reported then. >>
(End of quote from Bloomberg)


This report comes as no surprise. It is our opinion that CEO Mike Lawrie’s objective since joining CSC has been to sell or break up the company, not to rebuild it as an independent entity.

We believe that CSC’s current share price cannot be sustained in the long term, as we think Mr Lawrie and his management team cannot generate revenue growth and their cost cutting programs have taken the company about as far as it can go. See the news on Tesco; one of the largest supermarket chains in the world, for how analysts can miss the obvious signs of 'good' results while sales are in decline.


So it seems that Mike Lawrie has decided he must actively seek out buyers. We think he needs to do this quickly before the CSC share price bubble bursts.

On a platform above the heads of the spectators stands Dr. Bossey, in profile to the right, holding out a bottle of medicine, while his attendant mountebank or zany stands behind him, pointing him out to the crowd. At the back of the stage (left) is a table on which sits a monkey, also holding out a bottle. Beside the table sits a dejected-looking man, probably a patient. In the foreground 
Bossey or Bossy was, according to Angelo, who calls him a German, the last of the itinerant quack-doctors who practised and dispensed medicines on a stage. His real name is said to have been Garcia. 'Reminiscences', 1904, i. 

24 comments:

Anonymous said...

Back to the future!!

It looks like a repeat of former CEO Van Honeycutt's unsuccessful attempt to sell the company almost 10 years ago.

Anonymous said...

Private equity firms like Blackstone like to buy at a deep discount. An LBO would require putting together a deal that sold off the marketable parts of CSC (federal government sector & insurance/finance sector), making enough money to pay for the LBO. Then Blackstone would own the remainder at basically zero cost.

A friend of a friend was doing asset analysis for the CSC board some years back. They estimated the breakup value for CSC around $30 a share. I don't think an LBO as described above could work at the current stock price. That hasn't stopped some major LBO deals from being made, but an LBO at current prices is unlikely IMHO.

Due diligence would quickly show that the only thing working at CSC right now is cost cutting. No one will pay a premium for that.

Anonymous said...

"Citing both the potential for an LBO and expectations of new cost cuts, Raymond James has upgraded Computer Sciences (NYSE:CSC) to Outperform. Its target is $75."

http://seekingalpha.com/news/2006695-raymond-james-upgrades-csc-after-lbo-report

Expectations of new cost cuts? Maybe I should be working financial markets and not IT.... I think anyone here can see that coming!

Anonymous said...

Would you buy a company that publicly names about 40% of its workforce a herd of unethical lazy underperformers? Would you buy an elephantic organization that doesn't sign enough contracts to support its voracious board of leeches? Of course you would buy it, if it is for 30$, but never for 60 nor 75. Reality then? This speculation is a bluff to rise stock value. On the short run it makes sense. CSC has no mid nor long term objectives so they continue to use the stick and carrot strategy because it pays. Sooner or later this house of cards will collapse and those at the bottom will pay for the broken china, as usual.

Anonymous said...

I dunno, I read what I believe to be a pretty good analysis on a financial message board yesterday:

------------------

Wht the Leveraged Buyout LBO Really Means
.

It means that M. Lawrie having made his millions finally admits defeat.

Several years into the "transformation" it hasn't worked and CSC is firmly and securely stuck in the mud---up to all axles.

Lawrie can't get the cloud, big data, or cyber to launch and he can't get NPS winning new contracts.

That he is looking to Bain Capital (of Mitt Romney fame) suggests that he is looking at Private Equity (PE) companies that will buy all of CSC, take a meat axe to the remaining staff and benefits and then carve up the pieces into tasty morsels to be sold off to CSC's competitors.

The only remaining question is how much can Lawrie get?
Value Line and others have a 3 to 5 year target price of $80 to $90, but NO PE company will pay that much (they would lose their premium for buying CSC). The stock bounced up to $60 and then fell back. Is $60 the maximum enabling the PE company to possibly realize a $20 to $30 per share profit or 33% to 50%). That sounds about right.

Plus Lawries is NOT going to spin off NPS now and if ever there was a company interested in buying CSC now is the time for them to come forward. If no one does and the PE's aren't interested in an LBO, that tells you Lawrieis on his own (probably why he wasn't seriously considered for CEO at Microsoft).

All he has done is made a huge mess of everything and ruins people's careers, live, and retirement
------------

Anonymous said...

WTF!! in the Q&A from the Gossain all hands, someone said that there is plenty of deals out there, but CSC are not staffed up to go for them....thats the feedback from sale, do you acknowledge that?

What the frigg, idiotic management, incompetent, dumb, thick, stupid comes to mind. How can you expect growth without even having the people there to go challenge for these deals.

Gossains answer was that we need to go for the 'right' deals, and yes its understood.

I dont think CSC wants to win any new business. They want to balance this company and sell it.

Anonymous said...

...Mike Lawrie is trying to convince potential suitors that a turnaround at the company, which he took over in 2012, is halfway done, one of the people said.

Correct. The easy part was the first half, cutting costs. He has over done that and other than more staff cuts that portion is complete. The second part, growing revs will be the most difficult part to complete and not sure this is the CEO to drive that. Could be he knows that too.

Anonymous said...

The general consensus seems to be its only a matter of time before CSC is sold off.

Ignoring all the day to day dross you get used to my main concern is I suspect my enhanced redundancy terms I carried over to CSC may be lost. It would be ironic that those who have stuck it out will lose out if that happens.

The head says put my hand up and take VR at the next round, but the heart says I enjoy the technical aspects of my job so I should hang on !

Anonymous said...

Due diligence would also show that the senior management is too weak. This is a bigger problem for a Private Equity house than for an IT services company acquirer which would put its own people into key position

Anonymous said...

Re comment 1 October 09;02

"It means that M. Lawrie having made his millions finally admits defeat".

He has not admitted defeat at all. According to the FY2014 Proxy Statement he can collect US$34.3 million if terminated on change of control. He appears to be going for it full speed.

Anonymous said...

Listen to your head. You can get a heart transplant; head transplants are more difficult.

Anonymous said...

Take the money and run. I'm afraid that all the loyal (brave? stupid?) folks that stayed will end up being hurt in the end...when the bottom inevitably falls out, none of the higher ups will be looking out for the worker bees.

Anonymous said...

I left CSC back in April after missing out on 4 rounds of VR at least. I was a Technical consultant and SME that had no chance of getting out. Then in March this year rumours were around about a further round of cuts and I'd thought Id be in with the Change but got told that although I'd offshore most of my work they were short of Techie staff accros many accounts. Meanwhile a number of my managers have since got VR during August. Wtihin a month of putting my CV out I had a job offer. I decide to go as there was not sign of VR, I may have to travel to a new account and also have a pay drop due to losing callout to India. After I resigned my manages said I should have held on for VR but looking back they were just feeling envious that I'd landed a good job in London. Since then I found out that I probably would have been stuck on the account for another two years while they re-write a major application. The other reason I thought Id move without waiting for VR is that some accounts have already had their generous redundancy terms reduced from a max of 24 months to 18 months. I suspect my old colleagues handing on to their jobs for the pay out may indeed find they don't end up with what they expected and as they are all in their 50s could also find trouble getting another job.

If you are still in CSC I'd definitely think about moving on before you get pushed because even with a big payout you may end up with no job for a while. At the time I left 5 techie people took redundancy in the same month. So far NONE of them got jobs 8 months down the line. Meanwhile the managers who left in August all jumped to the Client so they are laughing. Shame they did little work over the years unlike the IT workers who are really the bread and butter of CSC.

Anonymous said...

Speculation from India: http://economictimes.indiatimes.com/tech/ites/indian-it-firms-like-wipro-hcl-tech-likely-to-bid-for-csc-if-it-splits-operations/articleshow/44056239.cms

Anonymous said...

Question: If there is to be an LBO involving senior management who you would assume would make a lot of cash by joining in, why have so many senior managers left the company recently. Don't they want to join in the LBO and get rich/richer? Why have they let this opportunity to enrich themselves pass?

Anonymous said...

Not good.
CSC battles for lost IRS contract
Washington Technology (blog)-2 hours ago
CSC filed a protest with the Government Accountability Office. That action led the IRS to pull back the award under the TIPSS 4 vehicle and ...

Anonymous in UK said...

Mike Lawrie is far too astute to risk his own personal fortune on a crumbling IT services company run by the likes of himself. It also assumes the LBO buyer actually wants Lawrie and co to run the company.

Anonymous said...

For what it's worth...
There has been some response to the Bloomberg article, indicating that CSC was talking to private equity firms for the purpose of doing work for them as part of their investments...i.e. to contract with CSC to do IT related work for a separate purchase ...
While I tend to mistrust much of what I hear from CSC's executives these days in this case I'm inclined to think it may be at least partially true as I can't imagine a PE firm being interested in the company at the elevated stock price now. Also the easy part of what I understand LBOs often do - cut deeply with lots of RIFs-has already been done, so the attractiveness is further diminished.
At some point someone will have to figure out how to put Humpty back together again...before it's too late.

Anonymous said...

I'm guessing that Mike & Co. did approach Blackrock and Bain for a sale and got turned down. Now that the thing has gone public they are falling back onto this "we only wanted to offer IT services" story. I wouldn't trust a word they say.

Anonymous said...

Come 2015 CSC as we know it will be gone. Once 2nd quarter results come out the truth will start coming out. NPS gets sold before end of Year and Commercial is Merged or taken private.

Anonymous said...

What incentive does Mr Lawrie have tied to shareprice? is it similar to Misys where he had to spruke the shareprice with PE rumours to hit a sustained shareprice to gain a cash bonus, only for those rumours to be quashed post the achievement of the personal incentive?

Anonymous said...

If you look at the insider transactions (finance.yahoo.com) it seems like Mike and some if not all of the executives' fortunes are tied to the magical share price $60. They only sell when share prices are above $60 which I suspect is either tied to their KPIs or they think that's when the company is fully valued. I also recall $60 target price was mentioned in an earlier post as Mike's KPI.

Also it may be worth noting that I have not seen a BUY from these people for a long, long time even when the share price was in the $20s and $30s. People are greedy by nature, especially when they are on the inside and know something good is happening - they'd be buying up big times. Tells you much about their confidence on the company's future.

Anonymous said...

Listen to your head....Winter is coming

Anonymous said...

Why buy shares when your exec stock options are granted to you at $0 with monotonous regularity, even when the HR director is telling staff "in a year when we did not meet our targets its unreasonable to expect a reward"