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December 21, 2010, 9:59 AM EST
By Katie Hoffmann
(Updates shares in seventh paragraph.)
Dec. 21 (Bloomberg) -- Computer Sciences Corp. Chief Executive Officer Mike Laphen said the computer-services provider plans to remain independent, even as his team fields calls from investors interested in taking the company private.
Computer Sciences has been labeled a prime target for buyout firms or larger technology companies because of its positive cash flow, low debt, and roster of government customers. Joseph Vafi, an analyst with Jeffries & Co., wrote a report in September that a private-equity firm could pay $8.7 billion for the company and earn a return of more than 25 percent over five years.
Laphen said he plans to keep Computer Sciences independent because of the growth opportunities ahead and the value of a services company that doesn’t sell its own hardware, like Hewlett-Packard Co. and International Business Machines Corp. do. His strategy to boost sales -- and his stock price -- is to expand in developing markets, gain share in more profitable services and lessen his dependence on government contracts.
“We’re undervalued, but there’s a relatively short path to where that valuation comes back,” said Laphen, 60, in an interview Friday at the company’s headquarters in Falls Church, Virginia.
Calls from private-equity firms picked up after Vafi’s report, said Randy Phillips, the company’s head of corporate development, in an interview at the headquarters. Though the company reviewed all the inquiries, none of the phone calls have led to serious talks, he said. He declined to identify any of the potential acquirers.
“It’s not surprising, and humorous and tiring all at the same time,” said Phillips, who joined the company in 2008. “But we like where we are. The board likes where we are. We like the plan.”
A Buyout Candidate
Computer Sciences rose 67 cents, or 1.4 percent, to $48.41 at 9:53 a.m. in New York Stock Exchange composite trading. The shares had dropped 17 percent this year before today.
The company, called CSC by analysts and its executives, is still a logical target for a financial buyer because of its cash and lower debt, Vafi said in an interview yesterday. The company had $2.7 billion in cash at the end of September, when its fiscal second-quarter closed.
The company gets about 40 percent of its business from the U.S. government, and the balance from government work abroad and private-sector customers. The mix is attractive to private- equity firms, which would have more flexibility in spinning off parts of the business, Vafi said.
Laphen’s Legacy
“You have two large, large business units -- you have the huge federal piece,” said San Francisco-based Vafi, who rates the shares “buy” and doesn’t own them. “You could sell that back to the public. The same thing is true for the commercial business.”
Laphen works out of Computer Sciences headquarters, on a tree-lined cul-de-sac about 10 miles west of Washington. He served in the Air Force, got a master’s degree in business administration from the University of Pennsylvania’s Wharton School and started at the company in 1977. He moved Computer Sciences two years ago from El Segundo, California, to put it closer to the largest client -- the U.S. government.
In an interview in his white-walled conference room, overlooking a forest, Laphen said he understands why the company is mentioned so frequently as an acquisition candidate, particularly for buyout firms.
“From their viewpoint, we’re an ideal candidate,” he said. “We have very predictable cash flows and a strong balance sheet.” He pointed out the company is buying back stock and increasing its dividend to lower its cash holdings.
Growth Opportunities
Laphen also explained what he sees as the company’s growth opportunities. The business-services sector, involving projects like cloud computing and analytics for corporations, can expand to a third of Computer Sciences’ $16 billion in revenue, up from a fifth now, he said. That business is also more profitable than traditional outsourcing, he said.
“We can’t stay stagnant,” he said. “There’s going to be a natural migration from traditional IT services. That’s where the market is going.”
The company also is looking to expand outside the U.S. and Europe, where it gets more than 90 percent of its revenue. Last year, it acquired the Brazil assets of BearingPoint Inc. to boost its presence in Latin America.
‘Completely Stealthy Company’
That should help the company sustain revenue growth of at least 10 percent in the near-term, a target the company has managed only once in the past five years, Phillips said. The company will also keep spending about $400 million to $500 million per year on acquisitions, he said, primarily on assets in Latin America, as well as services aimed at specific industries such as health care.
Part of the new strategy involves rebranding the company’s image as more than just a government contractor, Phillips said. The rebranding, which they’re working on this year, will involve getting executives in public more, boosting the number of advertisements and adding more salespeople.
“People say CSC stands for the Completely Stealthy Company,” he said. “We’re trying to raise our visibility.”
--Editors: Peter Elstrom, Ville Heiskanen
To contact the reporter on this story: Katie Hoffmann in New York at khoffmann4@bloomberg.net
To contact the editor responsible for this story: Peter Elstrom at pelstrom@bloomberg.net.
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(Updates shares in seventh paragraph.)
Dec. 21 (Bloomberg) -- Computer Sciences Corp. Chief Executive Officer Mike Laphen said the computer-services provider plans to remain independent, even as his team fields calls from investors interested in taking the company private.
Computer Sciences has been labeled a prime target for buyout firms or larger technology companies because of its positive cash flow, low debt, and roster of government customers. Joseph Vafi, an analyst with Jeffries & Co., wrote a report in September that a private-equity firm could pay $8.7 billion for the company and earn a return of more than 25 percent over five years.
Laphen said he plans to keep Computer Sciences independent because of the growth opportunities ahead and the value of a services company that doesn’t sell its own hardware, like Hewlett-Packard Co. and International Business Machines Corp. do. His strategy to boost sales -- and his stock price -- is to expand in developing markets, gain share in more profitable services and lessen his dependence on government contracts.
“We’re undervalued, but there’s a relatively short path to where that valuation comes back,” said Laphen, 60, in an interview Friday at the company’s headquarters in Falls Church, Virginia.
Calls from private-equity firms picked up after Vafi’s report, said Randy Phillips, the company’s head of corporate development, in an interview at the headquarters. Though the company reviewed all the inquiries, none of the phone calls have led to serious talks, he said. He declined to identify any of the potential acquirers.
“It’s not surprising, and humorous and tiring all at the same time,” said Phillips, who joined the company in 2008. “But we like where we are. The board likes where we are. We like the plan.”
A Buyout Candidate
Computer Sciences rose 67 cents, or 1.4 percent, to $48.41 at 9:53 a.m. in New York Stock Exchange composite trading. The shares had dropped 17 percent this year before today.
The company, called CSC by analysts and its executives, is still a logical target for a financial buyer because of its cash and lower debt, Vafi said in an interview yesterday. The company had $2.7 billion in cash at the end of September, when its fiscal second-quarter closed.
The company gets about 40 percent of its business from the U.S. government, and the balance from government work abroad and private-sector customers. The mix is attractive to private- equity firms, which would have more flexibility in spinning off parts of the business, Vafi said.
Laphen’s Legacy
“You have two large, large business units -- you have the huge federal piece,” said San Francisco-based Vafi, who rates the shares “buy” and doesn’t own them. “You could sell that back to the public. The same thing is true for the commercial business.”
Laphen works out of Computer Sciences headquarters, on a tree-lined cul-de-sac about 10 miles west of Washington. He served in the Air Force, got a master’s degree in business administration from the University of Pennsylvania’s Wharton School and started at the company in 1977. He moved Computer Sciences two years ago from El Segundo, California, to put it closer to the largest client -- the U.S. government.
In an interview in his white-walled conference room, overlooking a forest, Laphen said he understands why the company is mentioned so frequently as an acquisition candidate, particularly for buyout firms.
“From their viewpoint, we’re an ideal candidate,” he said. “We have very predictable cash flows and a strong balance sheet.” He pointed out the company is buying back stock and increasing its dividend to lower its cash holdings.
Growth Opportunities
Laphen also explained what he sees as the company’s growth opportunities. The business-services sector, involving projects like cloud computing and analytics for corporations, can expand to a third of Computer Sciences’ $16 billion in revenue, up from a fifth now, he said. That business is also more profitable than traditional outsourcing, he said.
“We can’t stay stagnant,” he said. “There’s going to be a natural migration from traditional IT services. That’s where the market is going.”
The company also is looking to expand outside the U.S. and Europe, where it gets more than 90 percent of its revenue. Last year, it acquired the Brazil assets of BearingPoint Inc. to boost its presence in Latin America.
‘Completely Stealthy Company’
That should help the company sustain revenue growth of at least 10 percent in the near-term, a target the company has managed only once in the past five years, Phillips said. The company will also keep spending about $400 million to $500 million per year on acquisitions, he said, primarily on assets in Latin America, as well as services aimed at specific industries such as health care.
Part of the new strategy involves rebranding the company’s image as more than just a government contractor, Phillips said. The rebranding, which they’re working on this year, will involve getting executives in public more, boosting the number of advertisements and adding more salespeople.
“People say CSC stands for the Completely Stealthy Company,” he said. “We’re trying to raise our visibility.”
--Editors: Peter Elstrom, Ville Heiskanen
To contact the reporter on this story: Katie Hoffmann in New York at khoffmann4@bloomberg.net
To contact the editor responsible for this story: Peter Elstrom at pelstrom@bloomberg.net.
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