Computer Sciences Corp (CSC - Analyst Report) is set to dispose of its Applied Technology Division (ATD), which deals with base operation, range service and aviation services, to PAE for a sum of $175.0 million in cash.
This is the sixth continuous divesture that the company made over a period of seven months. This reiterates the fact that CSC is committed on rebalancing the company’s portfolio in a way, which will help them strengthen the company’s business model by focussing on core strength of the company.
As per the contract, Computer Sciences Corporation will sell the aviation maintenance, base operations and maintenance, test and training range and space range businesses, while retaining the training and simulation business. ATD’s business currently spans across the United States covering more than 20 client locations.
Again, this acquisition would be of help to PAE as it would help the company gain access to the military and space testing and training services which will be a new capability. It will also increase PAE’s clients in the federal services market.
Moreover, this acquisition will give PAE access to 5400 trained employees, who have the experience of providing quality services to government and semi-government departments, NASA and the Department of Defence.
We believe that this is a win-win situation for both the companies, as CSC is trying to become a lean organization by divesting ATD. The sale of ATD is particularly beneficial for the company as the company is trying to focus more on the next generation of technology solutions and servicesas it has already built its expertise to deal with government organizations. On the other hand, PAE is trying to increase its competence in government and semi-government verticals.
Computer Sciences has stepped up the rate of divestitures over the last few quarters. Computer Sciences is expected to sell its Enterprise Systems Integration unit in order to streamline its operations. The unit will go to a consortium that includes ITOCHU Techno-Solutions Corp. for a total cash consideration of $90 million.
At the end of Oct 2012, Computer Sciences sold a part of its business, consulting and systems integration services, in Italy to Dedagroup. Moreover, in Dec 2012, the company sold its credit services unit to Equifax for $1 billion.
In addition to this, in 2013, the company sold its Australian IT staffing unit to Adcorp for $73.5 million. Through these divestures the company points toward its intention to focus on core competency and to turn itself into a more profitable organization. All the above mentioned divestitures were made with the intention of strengthening the business model of the company.
However, the company is feeling the heat of competition from the likes of BMC Inc. , coupled with a challenging macroeconomic condition in Europe. In addition to this, delayed order renewal process of the Federal government can make things difficult for the company.
Computer Sciences has a Zacks Rank #4 (Sell).
Investors can also consider other stocks such as SanDisk Corp (SNDK - Analyst Report) and Innodata Inc. ((INOD - Snapshot Report), both carrying a Zacks Rank #1 (Strong Buy).