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CSC Offloads IT Staffing Unit - Analyst Blog

By: Zacks.com
Posted: 12/14/2012 9:30:00 AM
Referenced Stocks: CSC;EFX;IT

Information technology (IT) services provider Computer Sciences Corp. ( CSC ) seems to be well on track to achieve excellence within its business portfolio by reshaping the same through consecutive divestitures. The company recently announced the divestiture of its Australian IT staffing unit, which marks the third one in the past seven weeks.

Per the terms of a definitive agreement, Computer Sciences will be offloading its staffing business in Australia to South African employee services company, Adcorp Holdings Ltd for a cash value of $73.5 million. The deal will benefit Adcorp in various ways, which includes greater geographic reach, rich client base, complementing product portfolio and reduced cost of operations.

Computer Sciences intends to meet its general corporate expenses with the cash consideration after deducting tax elements.

Last week, Computer Sciences signed a definitive agreement to sell its credit service business to Equifax Inc. ( EFX ) for $1.0 billion. After deducting tax, CSC expects total cash inflow of $750 million to $800 million. From this, the company plans to use $300 million to $400 million for share buyback, around $300 million to $400 million for its pension plans and the rest for general corporate purposes.

In October, the company divested its Italian consulting and systems integration services business to Dedagroup, an IT services company. Financial details of the deal could not be known.

It is notable that all the three business units were so far operating under its Business Solutions and Services (BSS) segment. The segment provides consulting, systems integration, business process outsourcing, and services such as staffing, repair and maintenance and credit reporting.

Now it has become clear that the company largely wants to focus on the outsourcing business. According to the research firm Gartner Inc. ( IT ), worldwide spending for IT outsourcing services would increase 2.1% year over year to $257.1 billion. The firm also expects a boost in IT sourcing spending in 2013 buoyed by Asia/Pacific regions and North America. Europe, however, with its continuing debt issues can put a lid.

Another advisory and research firm Offshore Insights expects a surge in spending for IT outsourcing services in 2013. The firm predicts a rise of 15.0%-18.0% in spending by 2013.

We believe that Computer Sciences is well positioned to capitalize on the opportunity.

Currently, Computer Sciences has a Zacks #1 Rank (Strong Buy).



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