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DXC to Spin-off USPS Business, Merge with Vencore & KeyPoint
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Last week, DXC Technology Company (DXC - Free Report) announced the spin-off of its U.S. Public Sector (USPS) business, and subsequently merging the same with Vencore Holdings and KeyPoint Government Solutions. The three companies have come together to form a publicly-traded IT service-providing company, primarily to the U.S. government. Notably, Vencore and KeyPoint are owned by private-equity firm Veritas Capital.
Initially, the new company will have a total workforce of over 14,000 and generate annual revenues of approximately $4.3 billion. However, the firm’s name has not been decided yet. The transaction is anticipated to close by the end of March 2018.
Transaction Details
Per the agreement, the deal will be structured as a ‘Reverse Morris Trust’ transaction, thereby making the entire transaction as tax-free to DXC Technology and its shareholders.
Upon completion of the deal, shareholders of DXC Technology will receive 86% of the combined company’s shares. Along with this, the company will receive $1.05 billion of cash from USPS, upon the completion of its spin-off. The proceeds from USPS are intended to be used for debt repayments, share buyback and other general corporate purposes.
On the other hand, Veritas Capital will receive approximately 14% shareholding and a cash consideration of $400 million upon completion of the entire transaction.
The current president and CEO of Vencore — Mac Curtis — will hold the position of chief executive officer of the new company, while Marilyn Crouther, senior vice president and general manager, DXC USPS, will serve as the chief operating officer. Mike Lawrie chairman, president and CEO of DXC, will chair the board of the new company, while names for other positions will be decided later.
Rationale Behind the Transaction
Per the company, the IT services market for both commercial and the U.S. public sectors has been evolving at an accelerating pace. Therefore, DXC Technology’s latest spin-merger move is believed to provide it a customized approach toward handling two different types of clients. Upon the successful formation, the new company will become one of the top five IT services providers to the U.S. government.
Furthermore, it should be noted that Vencore is well known for providing cyber security, engineering, analytics and other IT solutions to the federal government, while KeyPoint is specialized in offering investigative services to a wide range of sectors, including federal, defense, intelligence and civilian sectors.
Hence, per the company, the above-mentioned transaction is likely to fortify its capabilities in “offering differentiated, mission-driven solutions in cybersecurity, big data analytics, cloud engineering, enterprise IT services, and systems engineering – all enabled by a portfolio of cutting-edge Intellectual Property (IP).”
The reinforced capabilities will help the new company win government contracts, in turn bringing in more revenues, in our opinion.
Boosting Shareholders’ Wealth
The latest move came just months after DXC Technology came into existence in April this year. Notably, the company is a result of the merger of the Computer Sciences and the Enterprise Services business of Hewlett Packard Enterprise (HPE - Free Report) . The transaction has enhanced shareholders’ value of both the companies. Additionally, it has opened up new opportunities for driving the company’s growth.
Therefore, we believe the recent spin-merger transaction of USPS business will not only boost DXC Technology’s shareholders’ value in the near term, but will also continue to create wealth over the long run.
Since its first trading on Apr 4, 2017, DXC Technology has gained 34%, significantly outperforming the industry, to which it belongs to, return of 21.1%.
Currently, DXC Technology carries a Zacks Rank #3 (Hold).
Nutanix and SMART have an expected long-term EPS growth rate of 20% and 15%, respectively.
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DXC to Spin-off USPS Business, Merge with Vencore & KeyPoint
Last week, DXC Technology Company (DXC - Free Report) announced the spin-off of its U.S. Public Sector (USPS) business, and subsequently merging the same with Vencore Holdings and KeyPoint Government Solutions. The three companies have come together to form a publicly-traded IT service-providing company, primarily to the U.S. government. Notably, Vencore and KeyPoint are owned by private-equity firm Veritas Capital.
Initially, the new company will have a total workforce of over 14,000 and generate annual revenues of approximately $4.3 billion. However, the firm’s name has not been decided yet. The transaction is anticipated to close by the end of March 2018.
Transaction Details
Per the agreement, the deal will be structured as a ‘Reverse Morris Trust’ transaction, thereby making the entire transaction as tax-free to DXC Technology and its shareholders.
Upon completion of the deal, shareholders of DXC Technology will receive 86% of the combined company’s shares. Along with this, the company will receive $1.05 billion of cash from USPS, upon the completion of its spin-off. The proceeds from USPS are intended to be used for debt repayments, share buyback and other general corporate purposes.
On the other hand, Veritas Capital will receive approximately 14% shareholding and a cash consideration of $400 million upon completion of the entire transaction.
The current president and CEO of Vencore — Mac Curtis — will hold the position of chief executive officer of the new company, while Marilyn Crouther, senior vice president and general manager, DXC USPS, will serve as the chief operating officer. Mike Lawrie chairman, president and CEO of DXC, will chair the board of the new company, while names for other positions will be decided later.
Rationale Behind the Transaction
Per the company, the IT services market for both commercial and the U.S. public sectors has been evolving at an accelerating pace. Therefore, DXC Technology’s latest spin-merger move is believed to provide it a customized approach toward handling two different types of clients. Upon the successful formation, the new company will become one of the top five IT services providers to the U.S. government.
Furthermore, it should be noted that Vencore is well known for providing cyber security, engineering, analytics and other IT solutions to the federal government, while KeyPoint is specialized in offering investigative services to a wide range of sectors, including federal, defense, intelligence and civilian sectors.
Hence, per the company, the above-mentioned transaction is likely to fortify its capabilities in “offering differentiated, mission-driven solutions in cybersecurity, big data analytics, cloud engineering, enterprise IT services, and systems engineering – all enabled by a portfolio of cutting-edge Intellectual Property (IP).”
The reinforced capabilities will help the new company win government contracts, in turn bringing in more revenues, in our opinion.
Boosting Shareholders’ Wealth
The latest move came just months after DXC Technology came into existence in April this year. Notably, the company is a result of the merger of the Computer Sciences and the Enterprise Services business of Hewlett Packard Enterprise (HPE - Free Report) . The transaction has enhanced shareholders’ value of both the companies. Additionally, it has opened up new opportunities for driving the company’s growth.
Therefore, we believe the recent spin-merger transaction of USPS business will not only boost DXC Technology’s shareholders’ value in the near term, but will also continue to create wealth over the long run.
Since its first trading on Apr 4, 2017, DXC Technology has gained 34%, significantly outperforming the industry, to which it belongs to, return of 21.1%.
Currently, DXC Technology carries a Zacks Rank #3 (Hold).
A couple of better-ranked stocks in the broader technology sector are Nutanix Inc. (NTNX - Free Report) and SMART Global Holdings Inc. (SGH - Free Report) , both sporting a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Nutanix and SMART have an expected long-term EPS growth rate of 20% and 15%, respectively.
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If the stocks above spark your interest, wait until you look into companies primed to make substantial gains from Washington's changing course.
Today Zacks reveals 5 tickers that could benefit from new trends like streamlined drug approvals, tariffs, lower taxes, higher interest rates, and spending surges in defense and infrastructure.
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