Computer Sciences Corporation is streamlining its business operations. In order to focus on its core offerings, CSC has agreed to sell its credit service business to Equifax Inc. (EFX - Free Report) for $1 billion. The business will generate $230 million in revenue and 40 cents in earnings this fiscal year.
After deducting tax, CSC said it expects to have a total inflow of $750 million to $800 million. From this, the company plans to use $300 million to $400 million for share buyback, around $300 million to $400 million in its pension plans and the rest for general corporate purposes.
Previously, CSC had signed a business agreement with Equifax, under which it exchanged credit reports. At the same time, Equifax acquired an option to acquire its credit rating business by August 1, 2013.
At times, companies do divest certain business units as a strategy to use the capital in other lucrative businesses. These divestments do not always need the shareholders approval and can be carried out with the consent of the company’s management.
We believe that investors would find the deal to be beneficial. The market capitalization of the company increased to almost $200 million, as the news of the cash inflow of $1 billion issued by the company yesterday exceeded expectation. Prudent usage of this cash will help the company to bolster its business.
This is a very effective move by CSC, as the company is partially affected by the reduction in government orders coupled with reduced business in the financial segment. Also, demand for technology software and services are picking up in emerging economies.
Despite considerable exposure to Europe, strained federal budgets and stiff competition from Accenture plc (ACN - Free Report) and Hewlett-Packard Company (HPQ - Free Report) , CSC retains a Zacks Rank #1 (Strong Buy).