Computer Associates Makes Bid for CSC
Think of Computer Sciences Corp. as the ultimate technology hand-holder for global industries and the U.S. government--and one that saves them billions of dollars in the process.
CSC, which drew a $9-billion takeover bid from Computer Associates International Inc. on Wednesday, is an El Segundo-based concern that has hitched its success to the growing trend by companies and government to “outsource” their computer operations to slash costs and streamline operations.
CSC--started 39 years ago with $100--neither manufacturers computer hardware nor sells it. Rather, it helps solve the computer needs of big clients that require massive data-processing systems, designs the systems if necessary and, in many cases, actually takes over the management of those systems.
It’s one of the major players in that field, along with Electronic Data Systems Corp., International Business Machines Corp. and Andersen Consulting. And with customers increasingly demanding that their computer software systems and service come from one vendor, Computer Associates sees CSC as a perfect fit.
“There is a trend toward offering total solutions for computer problems at companies,” and CSC “is one of the premier service providers in the industry,” said Bruce Raabe, an industry analyst with the investment firm Collins & Co. in Larkspur, Calif.
CSC owes much of its success to a deft shift in strategy--a shift led by former Chairman Bill Hoover in the 1980s and ‘90s--away from its early reliance on Pentagon and other U.S. government contracts toward commercial accounts.
And by exploiting corporations’ growing desire to let someone else run their computers as a way to become more efficient, CSC maintained steady growth in its revenue and profit that offset the post-Cold War decline in defense and other government contracts.
CSC today employs about 44,000 people scattered across 600 offices worldwide. In the year ended Dec. 26, the company’s revenue totaled $6.3 billion--more than double its level of only four years earlier.
With the help of acquisitions it has made in recent years, CSC now provides computer services to the financial and insurance industries, health care, telecommunications and non-defense manufacturing companies.
Over the years its customers have included Ford Motor Co., Polaroid Corp. and Coca-Cola Co., and overseas clients include Guinness Brewing and British Aerospace.
One of CSC’s biggest commercial contracts came a year ago, when chemical giant DuPont Co. handed over its computer operations to CSC and Andersen Consulting, with CSC expected to garner the bulk of the $4-billion, 10-year award.
CSC overall gets about 73% of its annual revenue from commercial customers worldwide, with the balance coming from the Pentagon, the National Aeronautics and Space Administration and other U.S. government agencies. And nearly half of its commercial sales come from foreign customers, primarily in Europe.
Computer Sciences was started by a pair of computer analysts in their 20s, Fletcher Jones and Roy Nutt, who helped invent FORTRAN, a computer language widely used in scientific and engineering applications. Their original mission: To provide computer makers with complex software programs that made the machines more productive and easier to use.
Hoover, formerly a computer engineer at Jet Propulsion Laboratory, came aboard in 1964 and rose to become chief executive in 1972. He ran CSC for the next 23 years and turned it into an industry powerhouse.
There have been rough spots. In the early 1970s, for instance, CSC made a big investment in a service called Infonet--which sold time on one computer to many users--only to see the country hit an economic recession, depressing sales. But Infonet rebounded and prospered for the next decade.
More recently, CSC’s stock price has badly trailed the broader stock market despite the company’s continued growth, a situation that reflects the fierce competition CSC faces for new business, and CSC’s spending to develop new services and to handle some of the major contracts it has landed, analysts said.
Before CSC’s stock surged Wednesday in response to Computer Associates’ offer, CSC’s shares had gained only 14% over two years, compared with a 56% jump in the bellwether Standard & Poor’s 500 index.
Bloomberg News was used in compiling this report.
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Mixed Reaction
Computer Associates’ unsolicited bid Wednesday for Computer Sciences had opposite effects on their stock prices:
Computer Associates
Wednesday close: $50.75, down $7.31
Wednesday close: $103.88, up $11.69
Source: Bloomberg News
