Computer Sciences Corp. (CSC:US) agreed to sell its credit services business to Equifax Inc. (EFX:US) for $1 billion in cash, the second divestiture in six weeks as part of an ongoing turnaround effort. Shares of both companies gained.
The transaction is expected to close by the end of the year, and the proceeds will be used for share repurchases and to fund the pension plan, Falls Church, Virginia-based CSC said today in a statement.
CSC Chief Executive Officer Mike Lawrie, named to the post in February, has been moving away from traditional infrastructure sales and focusing on industry software and services. The company has cut jobs and worked to better manage contracts with customers including NASA and the U.S. Navy.
“CSC is in the early stages of its turnaround,” said Arvind Ramnani, an analyst at BNP Paribas, in an interview. “They’re going to continue to get rid of assets that they don’t see as part of the plan five years from now. Equifax is in the business, and this can easily be core to what they have to offer.”
The shares of CSC rose 4.1 percent to $39.62 at 10:34 a.m. in New York, and earlier reached $40.34 for the highest intraday price since May 2011. Shares of Atlanta-based Equifax advanced 4.7 percent to $53.65, and earlier touched $55.52 for the biggest increase since April 2009.
For Equifax, the transaction will generate incremental net operating revenue next year of $115 million to $125 million, and earnings before interest, taxes, depreciation and amoritization of $105 million to $110 million, the company said in a separate statement. The company said it has partnered with CSC’s credit services unit since 1988.
“Equifax was already doing all the work, they were just getting a minority revenue share,” said Carter Malloy, an analyst at Stephens Capital Management. “Now they’re just buying over the rest of the revenues. What this is is a very, very low risk, 12 percent accretive deal for Equifax. It’s a great deal.”
Richard Smith, Equifax CEO, said in October that he was interested in working with Lawrie to negotiate a deal with CSC for the credit-services unit.
Equifax, one of the most-commonly used consumer credit agencies in the U.S., has data on more than 500 million consumers and 81 million businesses worldwide.
The company has announced completion of 11 deals in the past five years for a total value of $1.2 billion, according to data compiled by Bloomberg. The average disclosed deal size has been about $300 million.
Lawrie said earlier this year that he plans to build out the company’s cloud, cyber and big-data offerings into businesses with as much as $1.5 billion in annual revenue.
CSC has worked to pare its operations to focus on technology services, and in October said it had agreed to sell the consulting and systems-integration services portion of its business in Italy for an undisclosed sum.
The credit-services unit owns credit files in 15 states representing 20 percent of the U.S. population, CSC said. The unit is the largest independent U.S. consumer credit reporting agency and has been affiliated with Equifax for more than 20 years.
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