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Report: CSC Pursued For Buyout By Capgemini, Carlyle Group

After reports emerged on Friday that CSC was in talks over a two-buyer buyout, more reports are now naming the parties involved in the acquisition talks as Capgemini and private equity firm Carlyle Group.

The rumors just keep coming. After reports emerged on Friday that Computer Sciences Corp. was in talks over a two-buyer buyout, more reports naming the parties involved in the acquisition talks emerged Tuesday.

In the latest report by Reuters, CSC was being pursued for a sale to private equity firm Carlyle Group and fellow solution provider behemoth Capgemini.

A sale of CSC would be the largest leveraged buyout since Dell went private for $16 billion in 2013. CSC is No. 4 on CRN's 2014 SP500 list with $12.6 billion in annual revenue for the 12 months ended Jan. 2.

[Related: CSC Buyout Speculation Heats Up As Stock Climbs 7 Percent]

This round of rumors was first reported on Friday of last week, with a report from Dealreporter saying that CSC was in talks over a deal to sell its North American public-sector division to a private equity firm and its commercial divisions to a foreign strategic buyer.

While the rumors add to the latest round of buyout speculation, the Reuters report also said that the talks with Capgemini and Carlyle have fizzled since they first started late last year. The report said it was not clear when, or if, the talks would continue, but says CSC is now working with the Royal Bank of Canada to review its options.

A CSC spokesperson wrote to CRN in an email, "We do not comment on rumor and speculation."

Investors cheered the buyout news, with CSC stock jumping more than 7 percent yesterday in reaction to the initial reports. The stock price closed on Friday at $66.93 and jumped nearly 10 points over the weekend, opening at $71.50 Monday morning. Today, the stock opened at $72.58 but dropped throughout the course of the day, falling more than 3.5 percent as low as $69.99.

CSC isn't a stranger to buyout rumors, with similar reports emerging in late September of last year that the company was exploring leveraged buyout options with multiple private equity firms, including Blackstone Group and Bain Capital. The company has denied to comment on all rumors so far.

The latest rumors would combine two of the largest solution providers on the CRN SP500 list, with CSC at No. 4 and Capgemini at No. 5.

According to the company's most recent earnings report, which came out Feb. 9, CSC has faced "strong headwinds" for its traditional commercial business, which according to the latest Reuters report was being evaluated by Capgemini. On the earnings call, CEO Mike Lawrie said that CSC has seen sequential margin improvement, up 60 basis points year over year, as the company continues to cut costs in the division, but revenue was down due to "unforeseen delays and execution issues."

While the CSC's commercial business has slowed in sales, its public sector business has been growing. In the most recent quarter, the public sector business did $998 million in sales, up 0.8% from the same quarter the year before. According to the Reuters report, private equity firm Carlyle had been evaluating buying out CSC's North American public sector business.

While the latest round of rumors may be unfounded, many of CSC's peers in the channel are turning to buyouts in recent months. Most recently, DLT Solutions, No. 39 on the SP500 list, announced this month that it had been acquired by private equity firm Millstein & Co. Other large solution providers recently acquired by private equity firms include Presidio, Accuvant, ConvergeOne and CompuCom.

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