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Computer Sciences Corp. says breaking up is the thing to do

May 19, 2015, 9:02 PM UTC

Computer Sciences

The Virginia-based IT services provider suffered a huge $4.2 billion loss last year after having to record several write-offs on underperforming projects, the biggest of which was its disastrous contract with the U.K.'s National Health Service (which cost it $1.5 billion). Mike Lawrie, who took over as CEO in 2012 was charged with turning around the company and he responded by selling off multiple businesses and reducing management layers. The company is slowly recovering; it posted a healthy profit of $513 million in this year's first quarter, up from a loss of nearly $1.4 billion in the same period last year.
Courtesy: Computer Sciences

The latest reports were on the money: Technology services vendor Computer Sciences Corp. is going to split itself into two companies.

This news, along with a special $10.50 per share dividend to be paid out by fall, was announced in advance of the company’s fourth quarter financial call on Tuesday.

After the corporate bifurcation, approved by the company’s board, CSC (CSC) Global Commercial will focus on Fortune 1000 companies—consulting with them on information technology infrastructure and their cloud strategies. That entity had $8.1 billion in revenue this fiscal year and more than a thousand employees, the company said in a press release.

Other than consulting, the current CSC offers its own VMware-based cloud computing platform for customers.

CSC U.S. Public Sector would concentrate on federal, state government accounts, and the various defense agencies. That business had $4.1 billion in revenue and 14,000 employees, according to CSC.

Rumors of a break up have circulated for a while, with Reuters breaking this news last week. Some CSC watchers at that time wondered what the benefit of an official split would be given that the commercial and government businesses were run pretty much separately anyway.

Activist investor, Jana Partners, which took a 5.9% stake in CSC early this year, issued a statement in support of the strategy, which it said will “unlock shareholder value.”

In a statement, Mike Lawry, who was named CEO of CSC in 2012, said the company is in year three of a turnaround, adding:

“Our focus now turns to positioning the business for long-term growth and leadership. The best way to accelerate that transformation is by separating the company into two businesses, each uniquely positioned to lead its market by focusing strongly on the needs of its clients.”

But corporate divorces are in the air. HP, which is also in a self-proclaimed turnaround, is in the process of splitting itself into a PC-and-printer company and an enterprise technology and services company. CSC is seen as a savvy provider of tech services which can be a lucrative business—provided costs can be kept in line. Basically, to make money providing services and support to big customers, takes a lot of money.

CSC has also dealt with more than its share of angst of late. Last week, the company said it was suing Eric Pulier, the former CEO of Servicemesh, a company it acquired for its multi-cloud management expertise two years ago for about $260 million. It alleges that Pulier violated its code of conduct.