CSC, garnering fat contracts; is acquisition target

When you saunter down the elephant path, be careful not to get trampled. Here is a story about two elephants: Customers still flock to El Segundo, California-based Computer Sciences Corp. (CSC), although the company is a possible takeover target. Indeed, the IT services provider signed several lucrative deals this week. The Internal Revenue Service gave CSC a $36 million task order to help the agency upgrade its business systems. Two days ago CSC allowed it was in talks to provide up to $1.9 billion in technology services over five years to British aerospace giant BAE Systems. The contract will call for CSC to operate critical infrastructure for BAE at 117 locations in the U.K. and North America. The contract would extend an existing agreement between CSC and BAE that expires next year. The same day CSC signed a seven-year extension to its services contract with DuPont — worth $1.6 billion to $2 billion — and announced the renewal of an agreement with missile systems developer MBDA. The MBDA deal is worth $100 million.

Lockheed Martin thought for a while about acquiring CSC, but recently stopped exploring this possibility. We believe people at Lockheed Martin, reflecting on their decision to back off negotiations, may now be asking themselves, “What were we thinking about?” They should reconsider CSC’s large deals and should encourage their company to follow in the footsteps of General Dynamics, which two weeks ago said it would acquire Anteon for $2.2 billion. As we argued [see issue of 12/15/05], traditional defense contractors should diversify their portfolio of offerings, and there is no better way to do so than to gain a sure foothold in the IT services market. CSC would give Lockheed Martin this sure foothold.

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