CSC has entered into a cash deal to sell its credit services business to Equifax for $1bn. Equifax, which grew 10% in FY11 to $1.9bn and generated an operating income of $471m, provides credit information to businesses and consumers using its own proprietary technology.
This year the CSC unit is on track to generate revenues of $230m – so is relatively small in the context of the company’s overall business. It is, however, nicely profitable with operating income expected to be in the region of $100m for the year. In other circumstances, this might be a business worth keeping, given the margins. However, CSC’s President and CEO, Mike Lawrie, wants to release the cash as part of his on-going strategy to turn CSC around. He will use the funds (which will equate to c$750m-$800m after tax) “...for share repurchases and to fund the pension plan, which will be value accretive."
Thus far Lawrie’s strategy to ‘fix’ CSC is showing some signs of bearing fruit. While the company’s Q2 results – announced in early November – saw revenue decline 1% (constant currency) to $3.85bn, operating margins ticked up to 7.7%, in contrast to -1.9% a year ago (see CSC: Turning around under Lawrie). At the time it was enough to push CSC’s share price to a 52-week high. Let’s see if Lawrie can continue to please investors in the coming quarters.