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10/26/2005
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CSC Sale Would Draw Close Scrutiny From DOD, Commercial Customers

A Pentagon review would involve security checks on key investors, an analysis of the impact of a management change on existing contracts, and a check on the deal's antitrust implications.

Any sale of outsourcing giant Computer Sciences Corp. to private investors would have to pass muster with the Department of Defense, a DOD spokesman says. "We have a process to review transactions [involving major contractors] for national security ramifications," the spokesman says.

Such a review would involve security checks on key investors, an analysis of the impact of a management change on existing contracts, and a check on the deal's antitrust implications. The DOD could cancel contracts if it believes a sale would have adverse consequences on its military and civilian operations.

CSC holds billions of dollars in defense contracts, including a deal to support the Naval Surface Warfare Center at Corona, Calif., and another one to support the Keesler Air Force Air Education Command Center in Mississippi. Any decision by the Pentagon to review its business with CSC in light of a sale could make potential investors edgy.

A number of parties are looking at buying the company, the country's third largest outsourcer behind IBM and EDS. Sources close to New York City-based Blackstone Group confirm that the firm is among the possible buyers. The Wall Street Journal has reported that Warburg Pincus, Texas Pacific Group and Lockheed Martin also are looking at CSC.

Beyond Pentagon concerns, some analysts say a sale to private investors could scare off commercial customers if the investors took on significant debt to fund the acquisition. "If the deal was highly leveraged, that could have negative consequences for the company's debt rating, and CIOs don't like to enter into long term relationships with vendors with a low rating," says Paul Hsi of Moody's Investors Service. Moody's current rates CSC's senior, unsecured debt at A3, a moderately good rating. CSC officials were not available for comment.

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