Computer Sciences Corp acquired fellow IT services and consulting house, Nichols Research Corp, yesterday, in a $391 stock swap deal, zeroing in on the firm’s expertise in the nascent US federal defense and intelligence sectors. El Segundo, California- based CSC will exchange 0.423 shares for each Nichols share, valuing the smaller firm at about $27.20 a share – a 7% premium on Nichols’ $25.50 closing price on Friday. CSC will also be liable for 1.5 million stock options held by Nichols employees under the deal, expected to be closed – pending approval by Nichols’ shareholders and the Securities and Exchanges Commission – by the end of November.
CSC – the world’s fourth-ranked IT services company – plans to tap Nichols’ experienced staff, including its quota of highly- prized Pentagon-vetted personnel, to bid for lucrative contracts in the highly-sensitive defense arena, a spokesperson told ComputerWire. Nichols drew around 80% of its $455m annual revenue for 1998 from providing IT, engineering and technical backup services for aviation, missile and space defense systems at US military and defense agencies. More than half of Nichols’ 3,000 staffers work at the firm’s base in Huntsville, Alabama, which is also home to the Redstone Arsenal, a US military complex controlling a $15bn budget – one of the largest in the US government.
The deal puts CSC in a leading position to capture a major IT infrastructure outsourcing contract expected to be awarded by Redstone within the next two years or so – one of the first such contracts to be offered by the US military. CSC’s existing 2,300 staff at Huntsville will be immediately swelled by 1,600 ex- Nichols employees. A particularly-prized asset for CSC is Nichols’ contingent of staff cleared to work on highly-sensitive defense and intelligence accounts by the Pentagon. Added to CSC’s own security-cleared personnel, this will give the firm a platform to bid for future contracts offered in this sector.
The CSC spokesperson said the deal was also a stepping stone to cornering future contracts in the missile defense sector. The firm is hopeful that the US government will approve plans to revive the mothballed satellite-based missile system, known formerly as Star Wars opening the sector up to outsourcing.
CSC draws 23%, or $2bn, of its revenue from US federal government sector contracts but there is little duplication with Nichols, the spokesman said. The deal also adds to CSC’s presence in the healthcare sector, where Nichols did 10% of its business. CSC will take over Nichols’ insurance claims processing applications delivered through an internet-based network, building on its own Power MHS mid-range platform for claims processing.
