The Latest on CSC's Buyout Rumor

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    Let’s see what coverage Computer Sciences Corp. is getting about its potential buyout.

    First, the basics. According to this Associated Press coverage, Lockheed Martin and three private investment firms are “considering a roughly $12 billion offer for the information technology outsourcing and consulting company.” That’s about $64 to $65 a share. The range that CSC stock has been trading at is between $42 and $58 over the last year.

    Lockheed would get the long-term government contract side of the company (about a third of CSC’s revenue), while Texas Pacific Group, Warburg Pincus and Blackstone Group would acquire the corporate customer business. (You can’t tell me that since those are Texas-based operations, there isn’t an Everest or TGI or other Texas outsourcing advisory firms involved in the considerations too.)

    CSC isn’t commenting on the buyout rumors.

    The Wall Street Journal on Tuesday said discussions are in the early stages. Among the challenges facing the deal: that although Lockheed “is willing to pay a big price for CSC’s government-contract business, which is of prime concern to the Bethesda, Md., defense contractor as military systems become increasingly software-intensive,” the success of the deal also depends on the size of the offer coming in from the PE firms for the “less-valuable” corporate business.

    The WSJ said CSC shares have been fairly stagnant since 2000, when its stock peaked at $100. Two years before that, Computer Associates had made an unsolicited bid of $108 a share, which was rejected by shareholders.

    Reuters points out that “big questions remain about the future of the rest of [CSC’s] business, serving big corporate clients such as DuPont Co. Outsourcing firms in India have been seizing market share from U.S. competitors, narrowing profit margins.”

    There’s probably a a remarkably well-aligned cultural fit between Lockheed and CSC. They’ve shared projects, clients, executives and IT experts — even workspace. But no word anywhere that I could find on what mid-level management or line employees at either firm think about a possible acquisition.

    UPDATE! Since this blog entry is getting so much traffic, I'm going to offer this quick update. According to this Reuters report, the attempt to buy CSC has been abandoned. Apparently, the asking price of $65 a share was a tad high for the suitors. (Today, December 5, 2005, CSC shares are trading at around $49.)