Computer Sciences Corporation finally sets sale, restructuring.

Perhaps the third time is the charm. Twice in the past six months, Computer Sciences Corp. has reportedly been the subject of a takeover bid. But the El Segundo-based information technology giant repelled the suitors, unable to make a successful match. Company executives never confirmed the talks.

But on April 4, CSC announced for the first time that it would be interested in exploring a possible sale of the company. CSC hired Goldman Sachs & Co. as its financial advisor and announced a rigorous restructuring program to slim down and get in shape for potential suitors.

The company promised to shed about 5,000 jobs from its employee base of 80,000, targeting "problem areas" of its European offices.

"For some time it has been apparent to us ... that there is excess capacity in certain geographies, particularly Europe," said long time. Chief Executive Van Honeycutt in a press release. "We have decided this is an appropriate time to deal with the issue."

The first two reported takeover attempts--one last tall and another in January--by defense giant Lockheed Martin Corp. and three private equity firms reportedly fell apart because CSC refused to allow the breakup of the company.

Analysts believe company management has likely come to terms with the idea. "The business could indeed be split in two," said Joseph Vail, an analyst with Jefferies & Co.

CSC under Honeycutt has built an information technology empire, bringing in revenues of $14 billion for the 12 months ending in December, and earning almost $540 million. About a third of the company's business comes from federal contracts--largely considered the most attractive part Of the business.

Meanwhile, its commercial IT outsourcing business faces tough competition from cheaper outsourcing hubs in India and elsewhere. CSC only has 6 percent of its work force in India--half the number of IT giants IBM Corp. and Accenture--according to a Merrill Lynch & Co. report.

CSC's most recent quarter was considered a disappointment by Wall Street, with the company reporting new contracts worth $3.1 billion, a 40 percent drop from the prior year.

Another difficulty in selling CSC was the price. Management reportedly wanted more than $65 per share, at a time when the stock was trading around $45, Many see the hiring of Goldman as a sign that the company is willing to lower its expectations.

Moshe Katri, an analyst with Cowen & Co., said he doesn't expect the company to fetch more than $60 per share and maintained his "neutral" rating on the stock.

The company declined to comment beyond its recent press release on the negotiations, which did not name names.

But many believe the takeover talks are quite advanced and involve one of its multinational competitors. "We feel the entry of a strategic player such as IBM, Hewlett Packard, or British Telecom changes the playing field here significantly," wrote Jefferies' Vafi.

He maintains a "buy" rating on CSC, and sees the restructuring as an improvement for the company's prospects, raising his price target on the deal to $70 per share.

CSC's shares have climbed from the $45-range in October to nearly $60 per share last week, giving the company a market capitalization of more than $11 billion.

HILARY POTKEWITZ

Staff Reporter

Computer Sciences Corp. (CSC)

Year (April)                   2005    2004

Revenue (billions)            $14.1    13.4
Total Expenses (billions)      13.3    12.8
Operating Income (millions)     715     676
Net Income (millions)           810     519
Earnings Per Share            $4.22   $2.75

Summary

Business: Information technology

Headquarters: El Segundo

CEO: Van Honeycutt

Market Cap: $11.2 billion

Total Liabilities: $6.1 billion P/E Ratio:13.4