CSC prepares internal split

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CSC prepares internal split

Wants to separate government from IT.

Technology consulting services provider CSC is planning to separate its government business from its commercial information technology division.

An announcement could come as early as next week, when CSC releases its fiscal 2015 earnings on May 19, according to people familiar with the matter.

The breakup would follow multiple attempts by CSC over several years to sell itself. The company has a market capitalisation of close to US$9.5 billion.

The company is in the midst of a cost-cutting campaign amid sequestration and budget pressures from the US government. However, its government business is seen as attractive to potential buyers because of the high barriers to entry for competitors.

While CSC is still open to acquisitions, it now sees a split in which shareholders would also get stock in a new company as the most attractive and tax-efficient transaction to pursue, one source said.

The sources asked not to be identified because the deliberations are confidential. CSC declined to comment.

The company's shares ended trading 4.3 percent higher at US$67.28 in New York on Thursday, after jumping as much as 7.1 percent earlier on the news.

In recent months, CSC has drawn buyout interest from French consulting company Capgemini, computer maker Hewlett-Packard and Canadian consulting firm CGI Group, as well as private equity firms. None of them could meet CSC's valuation expectations, one source said.

Representatives for Capgemini and CGI did not immediately respond to requests for comment. An HP representative declined to comment.

Hedge fund Jana Partners LLC disclosed a 5.9 percent stake in CSC in February, and said it would continue talks with the company about strategic alternatives and the composition of its board.

CSC's public sector division offers IT and operations-related services to global federal, state and local government agencies. It had revenues of US$998 million in the nine months that ended on January 2, 2015.

The non-government divisions of CSC provide a wide range global infrastructure and business services, including cloud, cyber security and big data services. They had combined revenue of US$1.9 billion for the nine months that ended on January 2.

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