I have been looking at this for a while. Why ORCL would buy CSC? I do not think there are going to. It just isn't a good enough of a fit.
So who would buy CSC (although all the long-term CSC employees say they have been through this before and don't believe anyone is going to buy CSC --- they are in for a surprise! It is different now. Too many companies sitting on too much cash).
One candidate always cited is IBM (IBM). But why would IBM need CSC. IBM sold of its Federal Systems back in the early 1990's. So If IBM wants back into federal (assuming they aren't already) they have enough in-house talent to form a group. They don't need to buy CSC. Same is true for Microsoft (MSFT), they don't need CSC. Dell (DELL) was rumored to be eyeing CSC before buying Perot (PER). CSC would not be a good fit for Cisco (CSCO) or even Hewlett-Packard (HPQ) since it already has Electronic Data Systems (EDS) (I forget what ever happened to Ford Aerospace).
Boeing (BA)? They are too busy getting the 787 Dreamliner squared away. Lockheed? Just offered a buyout and 600 executives took them up on it. General Dynamics (GD) and Northrop Grumman (NOC) and Raytheon (RTN) do not have enough cash to pay $6 billion for CSC (and that price doesn't even include any premium).
Other potential buyers are about the same size or smaller than CSC. So CACI (CACI) and SAIC (SAI) and Harris (HRS) and Accenture (ACN) and Unisys (UIS) are excluded from playing.
So who is left? United Technologies (UTX) has the cash and if they want to diversify out of defense with the coming defense cuts, CSC might be a good fit. Other companies that have a defense and / or IT side that most people are unaware of that might be suitors are: ITT and AT&T. But these seem unlikely possibilities.
So the only recourse left is Private Equity Investment (PEI) firms. There the two obvious possibilities are Blackstone and Caryle. They could break up CSC, selling off unwanted parts. The final possibility is Corporate CSC taking CSC private itself --- again seemingly unlikely.
If one suitor comes forward with a price of $53 or $56. A second player might come forward. At $42.87, CSC is near its 52-week low (McAfee and Potash were trading at 52-week low when they were bought). CSC is at or near its book value of $42.07.
Value Line, Morningstar, and Standard and Poors place an intrinsic value or 3 to 5 year target price of between $65 to $95. So a lowball bid should flush out suitors who would be willing to buy CSC just to get rid of a competitor (i.e., then IBM is a possible suitor). just as Compaq (CPQ) bought Digital Equipment Corporation (DEC) just so it could retire the VAX operating system.
Since the news stories seem to be accumulating and the stock price is rising, with 154 million shares outstanding each $1 in the stock costs a suitor $154 million. Friday there where four trades in the 800K to 900K share range which at the current stock equaled $148 million.
The fireworks could start as early as Monday. Plus if there are any legal advantages (i.e., favorable tax legislation expiring) the buyout would come before the end of the year. If ORCL is truly interested, give Hurd about 3 to 4 weeks to get familiar with ORCL before a bid for CSC is made.
Finally, with the recent spat of stories about CSC possibly getting taken over, a suitor might wait for the stock price to settle back down to the low 40's to upper 30's before launching a bid. Regardless, if the stock is worth $65 to $95 a share, buying in the upper 30's to even the high 40's, CSC is still a bargain. And if NO suitor appears CSC stock is a value play for any investor.
dgalbers you think there would be some extra activity in the Dec or Oct Calls and I don't see any. Usually before any buyout happens someone gets wind of it and scarfs up tons of CALLS, and I don't see any extra activity. Unless this is one hush hush deal happening?
If nothing happens and CSC sits at low 40's or even high 30's (though unlikely for too long!) your money is as good as a CD. At 1 and a half % dividend it is not great but it is better than cash sitting at the bank for near zero %. IMHO.
If something happens soon, the price could shoot up to the mid or high 50's easily, a whopping 40% gain.
A reasonably "Safe Bet".
After spending some time reviewing this stock I came to a conclussion that CSC should start buying CSC. Share buyback could be a good idea. Is it a small profit margin an issue here?
This company is going to bring arounf $750M in earnings, that cannot be so bad?
How about CSC buying CSC via a private equity firm takeover? Say at a descent consensus price of ~ $62ish?
I am sure the 85% holding institutions and mutual funds wouldn't object vehemently. Retail and individual investors are relatively few and far in between for this stock.
Then after the takeover, shop around for different buyers on the operating sectors. Quite a few defense behemoths would be interested in the North American Public Sector piece that fits with their synergies.
At book value this stock is a Gem. The time is now because IT had matured and future growth would be limited.
A final breakup is now at hand.