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By | Paul Kunert 15th May 2015 10:23

Splitters! CSC to break itself into pieces following job cull

Integrator moving away from North America govt division

The break-up craze among the largest tech vendors may have reached the channel, with talk that CSC will separate its North America government unit from the rest of the private-sector sales organisation.

The split could come as early as next week, according to Reuters, when the loss-making company takes the covers off its latest financials for the fourth quarter.

As exclusively revealed by El Chan earlier this week, the integrator is back in cost-cutting mode. The latest annual redundancy ritual will see nearly 800 Brits tossed on the employment bonfire: their jobs are to be sent overseas to regions where wages are lower.

The news agency claimed CSC’s public sector organisation is viewed as something of a lure to potential buyers because of the relatively high barriers to entry of selling tech and services to the US government.

The potential spin-off would – as is happening with HP and Symantec – result in the creation of two publicly traded entities.

The development follows continued industry chatter that CSC was trying to find a buyer, with Indian outsourcer HCL previously placed in the frame due to the existing trading relationship between the pair.

Other potential suitors that are said to have looked at the integrator include HP, CGI Group and French consultancy Capgemini, according to the report. Buy price was said to be the stumbling block.

Anthony Miller, managing partner at analyst TechMarketView, said that with CSC's market cap at $9.2 billion, "if you pro rate the valuation based on operating profit, this would suggest ‘the rest’ is worth perhaps $5.5 billion". So with even a 10 per cent acquisition premium, we’re looking at a price north of $6 billion. That needs deep pockets".

Former Misys CEO Mike Lawrie was handed the top job by CSC is early 2012 amid an SEC accountancy probe and following a disastrous National Programme for IT project in the UK, which meant the business was heading for a pre-tax loss of $4.3bn.

Lawrie identified cost-cutting as a strategy to return the company to profit, but as we pointed out last year amid another re-org, this only works to a point before service delivery is severely damaged.

Businesses get stuck in a rut when turnover and gross margin falls and they need to find more and more costs to cut to meet margin expectations, and it seems CSC is trapped in this spiral.

In fiscal Q3 ended 2 January, sales fell 8.7 per cent (6.5 per cent in constant currency) to $2.94bn – the North America government biz accounted for $998m, up 0.8 per cent, as the Global Business Services and Global Infrastructure Services divisions both declined.

The company made a loss from operations before taxes of $418m, blaming execution issues and customers delaying project work.

CSC, whose shares rose by up to 7.3 per cent last night following the split talk, refused to comment. ®

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