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New Day Dawns: CSC Split, SRA Merger Done, Spawning $8.1B Commercial, $5.5B Public Sector Powerhouses

CSC and CSRA executives rang the New York Stock Exchange's opening bell today as separate entities, culminating a flurry of transactions intended to reposition both businesses for stronger growth and profitability.

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CSC has officially split its commercial and public sector businesses and merged the latter with SRA to create the world's largest pure-play U.S. government security provider.

Executives from both companies rang the opening bell at the New York Stock Exchange on Monday morning as separate entities, the culmination of a flurry of transactions intended to reposition both businesses for stronger growth and profitability.

"The debut of CSRA and the completion of the merger with SRA accelerate our transformational goals and enable both CSC and CSRA to drive innovation and better address the demands of the markets they serve," Mike Lawrie, president and CEO of CSC, and chairman of CSRA, said in a statement.

[RELATED: CSC To Complete Split Nov. 27, Will Name Public Sector Business CSRA]

A one-for-one distribution of CSRA shares to CSC stockholders occurred after the market closed Friday, with stockholders receiving a $10.50 per share dividend from CSC and CSRA. CSC started off Monday strong, with the stock price climbing 5.5 percent to $30.51 per share, while CSRA stock jumping 3.6 percent to $30.26 per share early in its first ever day of trading.

As part of its launch, $5.5 billion CSRA unveiled a new logo with navy blue text and a stylized American flag as well as a 16-person executive team with representation coming fairly equally from CSC and SRA. CSC shareholders own an 85 percent stake in 19,000-employee CSRA, while SRA shareholders – led by private equity power Providence Equity Partners – own the remaining 15 percent.

"We have created the leading provider of next-generation IT solutions that will really make a difference in how our government serves our country and our citizens," Larry Prior, CSRA's CEO, said in a statement.

The $8.1 billion, 56,000-employee global commercial business – which will retain the CSC name and ticker symbol – is trying to turn around its sagging fortunes through a series of acquisitions. Sales for these business lines toppled 8.8 percent in the most recent fiscal year, which ended March 31, while operating income plummeted 12.8 percent, to $591 million.

CSC earlier this month entering into a bidding war against Capita plc for Xchanging, offering to buy the London-based IT outsourcing firm for $640 million.

The Falls Church, Va.-based company, No. 5 on the CRN Solution Provider 500 before the split, has also agreed since August to acquire: UXC Ltd., Australia's largest IT services company, for $307.9 million; managed trading solutions provider Fixnetix of London; and Fruition Partners, a 300-person, cloud-based service management firm based in Chicago.

CSRA will be led by Prior, who has run CSC's $4.1 billion North American Public Sector (NPS) business since December 2014, while SRA's executive vice president (EVP) and chief financial officer, David Keffer, will slide into the role of CFO with CSRA. They will have a tough task in front of them, as year-over-year sales in its North American public sector (NPS) business have fallen 6 percent and 7.1 percent, respectively, in the two most recent quarters.


CSRA is targeting an annual growth rate of 2 percent to 3 percent through 2019, with an emphasis on expanding its health and civil business sales, according to an investor day presentation earlier this month. The company expects to have operating margins of 14 percent, the highest of any IT firm in the public sector space.

CSRA will launch its existence with $3.5 billion of debt, consisting of $1.56 billion to fund special dividends, transaction costs and repayment of indebtedness, and $1.44 billion to pay merger consideration and transaction costs and refinance existing SRA indebtedness. The solution provider can borrow an additional $500 million through its existing facilities.

CSRA will be based out of CSC's existing headquarters in Falls Church, Va., with the company anticipating $80 million to $100 million of annual savings by consolidating real estate, governance and administrative functions.

Executives moving from CSC's NPS business to CSRA include: EVP of Business Development Sally Sullivan; EVP of Civil Group Charles Koontz; EVP of Department of Homeland Security Group Catherine Kuenzel; EVP of Defense Mission Group Ken Deutsch; EVP of Delivery & Operations John DeSimone; and Chief Information Officer John Dancy.

Top leaders moving from $1.4 billion SRA to CSRA include: Chief Human Resources Officer John Reing; EVP of Defense Group George Batsakis; EVP of Health Group Paul Nedzbala; Chief Marketing Officer Andrew Bryden; and Interim Vice President of Security Bob McCants.

CSRA also brought in a couple executives from other public-sector titans, including EVP of Intelligence Group Leigh Palmer, who was VP of BAE Systems' Intelligence Business for 11 years; and VP of Investor Relations and Strategy Stuart Davis, who was corporate EVP of strategy at ManTech for six years. Paul Burns, general counsel of North Dakota Liquefied Natural Gas, will be CSRA's interim general counsel.

CSC was the fifth major technology company to announce a split over the past 18 months in response to market pressure from the shift to cloud computing. Other technology companies announcing split or spinoff plans included Hewlett-Packard, Symantec, IBM and eBay.

PUBLISHED NOV. 30, 2015

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