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Talk of Bid Boosts CSC Shares

Private equity firm Blackstone Group and Hewlett-Packard are said to be considering a joint offer.

January 06, 2006|From Reuters

A report that a private equity firm and Hewlett-Packard Co. were considering a joint bid for Computer Sciences Corp. lifted the information technology company's shares 7.9% on Thursday.

The report marks the second time in the last three months that takeover speculation has surrounded the El Segundo company, whose shares have climbed about 25% in that time.

The pursuit of CSC also highlights how the technology outsourcing sector is becoming a hotbed for merger-and-acquisition activity, with its rival Affiliated Computer Services Inc. reportedly attracting private equity bidders.

The Wall Street Journal, quoting people familiar with the matter, said Thursday that Hewlett-Packard and Blackstone Group were mulling over an offer for CSC, with the company hoping to attract $65 a share, or about $12 billion.

The report said computer maker Hewlett-Packard at first would own a minority interest in CSC and later could buy out Blackstone and other private equity owners.

A source familiar with the matter said Blackstone and Hewlett-Packard had held discussions about a deal but cautioned that the talks were preliminary.

"In our view, CSC could provide HP with scale and reputation that would help HP achieve its services ambitions," said Cindy Shaw, an analyst with Moors & Cabot, referring to an HP division. "The two firms' technology strengths are complementary."

HP's services division focuses on providing information technology for businesses. In the fiscal fourth quarter ended Oct. 31, HP Services' revenue grew 6% year over year to $3.9 billion, according to the company.

CSC spokesman Mike Dickerson said, "As a matter of policy, CSC doesn't comment on rumor or speculation." Hewlett-Packard and Blackstone declined to comment.

The jump in CSC shares Thursday may dim Blackstone's enthusiasm for a deal, the source said. Private equity firms, which buy and sell companies, are sensitive to paying high prices because, unlike corporate buyers, they lack the ability to absorb costs with synergies.

CSC shares surged in late October on reports that Blackstone and other private equity firms were exploring a deal for the company with defense contractor Lockheed Martin Corp. CSC shares dropped 11% on Nov. 21 on reports that the prospective deal had fallen apart.

Still, the stock has risen 25% since the takeover chatter began late last year.

The shares rose $3.99 on Thursday to $54.81.

CSC manages computers and integrated tech systems for the U.S. military, NASA and other government agencies. It also provides outsourced computer services to big corporate clients, including Nortel Networks Corp. and DuPont Co.

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