Routine, or ... did CSC update severance terms for a reason?

A funny thing happens when a company is rumored to be a takeover target: Suddenly every move it makes gets an extra dose of attention.

Such is the way with El Segundo-based Computer Sciences Corp., which just updated its severance packages for upper management and renegotiated Chief Executive Van Honeycutt's employment contract, according to a recent SEC filing.

It also outlined deferred compensation plans in the event of a merger, acquisition, or "change in control." The firing did not specify dollar amounts.

The company insists that the December filing was simply an update to comply with new Internal Revenue Service regulations by the Dec. 31 deadline. But given reports in the Wall Street Journal of recent buyout talks that ultimately fell apart, the new executive contracts have become the source of analyst speculation.

"The company is probably putting themselves in a better position in case something happens again," said Joseph Vail, an analyst with Jefferies & Co. "They want to make sure these senior guys feel they're taken care of."

In October, the Journal reported that Lockheed Martin Corp. and private equity firms Texas Pacific Group, Warburg Pincus and the Blackstone Group were negotiating a buyout for about $12 billion, or $65 per share. At the time, the computer outsourcing company was trading in the $45 range. Shares quickly spiked, although none of the companies involved confirmed the negotiations.

"CSC has been looked at as a takeover target, and I'd be surprised if that's not ongoing," said Rod Bourgeois, an analyst at Sanford Bernstein and Co., who noted them are many masons why companies update executive pay packages--some routine, some due to special circumstances.

The renegotiated pay packages don't necessarily mean another buyout is in the works, but they do mean the company is getting its internal affairs in order. IRS rules passed last year dictate that certain deferred compensation plans issued after December 2004 could be subject to a 20 percent tax, unless they comply with the new rules.

Computer Sciences spokesman Mike Dickerson said the IRS ruling gave companies until the end of the year to make certain changes to their deferred compensation plans, and until the end of next year to make other changes to comply with the roles.

About one third of its business comes from government contracts--considered the most attractive sector. Its commercial outsourcing business is less robust.

Any future sale is expected to result in a break-up of the company for its government contract business. "The federal side of the business would be the most attractive asset," said William Loomis, an analyst with Stifel Nicolaus & Co said.