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Computer Sciences: If You Can't Split In This Market, Give Up

Computer Sciences Corp is planning to split its commercial IT and government business. This comes after an apparent failure to sell the entire company.

CSC has a government business that generates a large part of its revenues, but that's not a sexy business - leading the market to discount its multiples. It also has its business services segment, which has been “in transition.”

JANA Partners is active in the name, albeit a smallish $560M position - and shares are down 7% since it officially went active on the name in Feb.

Now, the announced spin is nothing new, nor a surprise. It’s just as the company had initially planned last year - where it’ll sell its government business to a private equity firm and its business services business goes to a foreign player.

The talks are supposedly in advanced stages, but we’ve seen this story before with CSC. The more likely (or feasible) path is to spin off its government business, which sets up the business services/big data/cloud business up to be bought by a larger internet player. Structured right, the government business could be spun off tax-free as a government services company.

Michael Lawrie, the former ValueAct Capital partner, has been in beast mode since taking over as CSC CEO in 2012. Shares are up 110% since then. But he’s really hurting of late.

The May 19 earnings announcement is the date to watch for - more details on the split should come then.