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Computer Sciences cutting 5,000 jobs

Computer Sciences Corp. on Tuesday said it plans to cut about 5,000 jobs, or about 6 percent of its work force, over two years and is considering selling the company, a provider of information technology services.
/ Source: The Associated Press

Computer Sciences Corp. said Tuesday it plans to cut about 5,000 jobs, or about 6 percent of its work force, over two years and that a possible sale of the company is under consideration.

Computer Sciences said its board has decided to explore the company’s options for improving shareholder value and has hired investment bank Goldman Sachs & Co. as its adviser.

The announcement came after The Wall Street Journal, citing unnamed people familiar with the matter, reported in its Tuesday edition that Computer Sciences is in talks that could lead to a potential sale of the company for $10.6 billion or more.

Media reports surfaced last year that defense contractor Lockheed Martin Corp. had considered making a bid with private investment groups. Earlier this year, reports were that Hewlett-Packard Co. was also considering a bid.

Tuesday, Computer Sciences said it would cut its work force of 80,000 employees as part of a major restructuring to improve the company’s cash flow and earnings.

The restructuring plan involves 4,300 job cuts during fiscal 2007, which began Saturday, and 700 job cuts in fiscal 2008. Most of the reductions will come in Europe, the company said.

“For some time it has been apparent to us, and to other companies in our industry, that there is excess capacity in certain geographies, particularly Europe,” Chief Executive Van Honeycutt said in a statement.

“After lengthy consideration, we have decided that this is an appropriate time to deal with the issue through a restructuring,” Honeycutt said.

The company provides computer services to federal civilian agencies, including the Internal Revenue Service and Defense Department, as well as to commercial clients. The company also is a major provider of consulting services. Most of its business is done in the U.S., but it is also a big player in Europe.

The company’s income for the third quarter, which ended last Dec. 30, surged 29 percent, helped by a sharp rise in revenue from the federal government, as well as solid growth in the commercial sector.

Income for the quarter was $203.5 million, or $1.08 per share, up from $157.5 million, or 82 cents per share, last year. Revenue for the quarter was $3.58 billion, up from $3.49 billion last year.

The company reported that income from its European operations declined 4.6 percent in the quarter.

Analysts say separate bidders may emerge for the commercial and federal government units of the company.

Its major competitors for commercial contracts are International Business Machines Corp. and Electronic Data Systems Corp. Analysts consider both companies, along with some smaller players, to be potential bidders.

On the government side, the company’s top competitors include Lockheed Martin and Northrop Grumman Corp., both of which could join with private equity groups to make a bid, analysts believe.

Computer Sciences is attractive because its shares have historically traded lower than its peers, according to William Loomis, an analysts at brokerage firm Stifel Nicolaus.

“There is a lot of private equity money out there and this deal seems to be originating from private equity interest,” Loomis said.

The company also has long-term government deals, which provide the kind of predictable cash flow that would allow private equity firms to borrow more money based on the company’s assets, he said.

Other analysts said the company’s restructuring plan would boost its earnings and cash generation, giving it the chance to command a higher buyout price.

Computer Sciences said it expects to take a related charge of about $345 million this fiscal year and $30 million in fiscal 2008.

Without those charges, the company expects the restructuring to save it about $150 million this fiscal year and $300 million in fiscal 2008.