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January 05, 2006
HP's CSC Play: A Milestone Deal?
I don't have any inside scoop on whether the talk of HP and private equity firms teaming up to buy CSC is correct. But I wonder if HP and its would-be partners might have hit upon a pioneering new approach to M&A--one with very interesting potential benefits to both parties.
Here's what I'm thinking. For their part, Blackstone and its private equity partners get the benefit of a likely buyer--which must be a nice comfort, given fears that there's far too much private equity money chasing too few worthy opportunities. And HP could get the benefits of an acquisition without a massive initial outlay of cash or equity, and potentially much better terms should it decide to buy the entire company.
For starters, CSC's new owners would obviously have HP in mind as they do their cost-cutting LBO thing, in an effort to make it as appealing as possible for HP to buy down the road. And while the deal as of now looks to be dilutive, HP may think it can lift its earnings multiple in the meantime so that it might be able to buy the remainder of CSC on better terms in the future.
Maybe I'm missing something. In fact, given that I'm just a humble tech reporter and not a high-finance genius, I'm probably missing something. If so, please let me know.
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Well yes, you are right. I am working for CSC from past few years and the real juice in CSC are the long term government contracts across the globe. HP and thye quity partners are eyeing that juice which they can relish for many years. Not sure of the news though. As an employee we dont have any info on that. But if this happens I hope this will be a good thing for us too...
Posted by: Sharad Madan at January 6, 2006 03:32 AM
Dear Peter, I have been employed with CSC EMEA-GIS UK for several years and I could briefly remark a few interesting facts which may help your readers to get the facts straight. Within the past 2 years CSC has lost competitiveness in Europe due to management failures and inefficiencies handling existing and new projects. To cite an example the Rt Hon John Reid was recently enquired by the Healt commision over the NHS systems scandal. 1 billion pounds invested on applications which are a "complete cockup"). No wonder several accounts are leaving in favour of Accenture and IBM, companies as Gallaher, Basell, Bombardier, Ge, UTC, ISS, NHS, Nortel and so on...(Some insiders would wisper that the only reason UK DoD contracts are being kept inhouse is probably due to Mr Reid being the previous Secretary of State for Defence AND a very regarded man in this corporation...). Therefor I am not sure "HP and US private equity firms" would ever be interested buying a company facing such heavy financial losses in UK and the US. Whatever the cause of this so-called "transformation" certainly a lot of good people will hit the road in the next 3 months.
Posted by: Paul Jones at May 27, 2006 06:45 AM