DynCorp deal boosts CSC's telecom play

As the federal government changes the way it buys telecommunications and networking services, Computer Sciences Corp. is planning to create a telecom and networking unit after it purchases DynCorp.

Once the merger is complete in the first quarter of 2003, the new unit will have "all the resources needed to prosecute any telecom/networking project in the federal government," said Paul Cofoni, president of CSC federal sector.

CSC of El Segundo, Calif., announced the deal for DynCorp of Reston, Va., Dec. 13.

Traditionally, the government relies on telecom carriers for telecommunications and networking needs, but with many companies in that industry in disarray, relying on a single supplier has become too risky, Cofoni said.

"We are seeing a number of network management [request for proposals] come out," he said.

DynCorp has telecommunications contracts with the FBI and the Environmental Protection Agency that are structured around service level agreements that set thresholds for factors such as reliability and technology refreshment, Paul Lombardi, DynCorp president and chief executive officer.

The contracts are not tied to a specific telecom carrier. "The agency couldn't care less who the carrier is," Lombardi said.

Outsourcing is another major strength DynCorp will bring to CSC, Lombardi and Cofoni said in a meeting last Friday afternoon with analysts and reporters.

DynCorp's strength is in mission areas directly supporting the Department of Defense in the field, while CSC builds and operates the systems that support the mission, they said. For example, CSC is modernizing the Army's wholesale logistics system, while DynCorp manages and operates the trucks that deliver materials.

"Together we will have a much better story to tell as a single solution," Cofoni said.

With the government revamping the A-76 process for conducting competitions between the public and private sector and the federal work force aging, more outsourcing is on the way, Lombardi said.

Talks between DynCorp and CSC began more than a year, but at the time CSC couldn't make the business case to complete the deal, Lombardi said. Then about a month and a half ago, talks resumed. Within 35 days, the $950 million deal was signed.

CSC is paying $15 in cash and $43 in CSC stock for each share of DynCorp. CSC also is assuming about $273 million in DynCorp's debt. DynCorp had about $2.3 billion in revenue for the year ended Sept. 26. CSC had $11.4 billion in annual revenue, about 25 percent of it from government work.

With the acquisition, CSC will have about $6 billion in annual government revenue. Cofoni said CSC will be one of the top three providers of government information technology services along side Lockheed Martin Corp. and Northrop Grumman Corp.

About the Author

Nick Wakeman is the editor-in-chief of Washington Technology. Follow him on Twitter: @nick_wakeman.

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