CSC To Spin Off CSRA On November 27, Pay $10.50 Special Dividend

Computer Sciences Corporation(CSC) announced that its Board had approved the spinoff and subsequent merger of CSRA, as well as a $10.50 special dividend. After the market close on Friday, November 27(which is the day after Thanksgiving and will be at 1PM), CSC shareholders as of November 18 will receive one share of CSRA for each share of CSC held. CSRA, which is CSC’s U.S. public sector business, will subsequently merge with SRA International on Monday, November 30. Prior to the merger, the companies will pay a special dividend, which in aggregate will total $10.50.

Shareholders of privately held SRA will receive $390 million in cash and own 15.32% of the combined company. Presumably, this will be a reverse Morris Trust transaction. The new CSRA will be

the largest pure-play IT services provider serving the U.S. government sector, with combined FY15 revenues of approximately $5.5 billion, nearly 19,000 employees and among the industry’s leading profit margins.

“The combination of CSGov and SRA is an important strategic move to best position the combined company as the government IT services industry consolidates,” said Mike Lawrie, CSC’s president and CEO. “We believe CSGov’s next-gen software platforms and solutions – together with SRA’s go-to-market capabilities and customer intimacy – will deliver significant benefits to U.S. government clients, open new opportunities for employees of both firms and create substantial value for shareholders.”

The combination of CSGov and SRA will bring together highly complementary IT capabilities, with approximately three-quarters of revenues generated from cybersecurity, software development, cloud and IT infrastructure. Additional revenues will be derived from domain-specific professional services, including intelligence analysis, bioinformatics and health sciences, energy and environmental consulting, and enterprise planning and resource management.

“We are delighted to enter into a business combination that is strategically compelling, and one that strengthens the next generation IT capabilities the combined organization can offer to its customers,” said Chris Ragona, managing director of Providence Equity Partners, SRA’s controlling shareholder. “The two businesses are a natural fit and we are excited by the value creation opportunities that can be realized through this combination.”

“When-issued” trading is expected to begin November 16.

Disclosure: The author holds no position in any stock mentioned