DXC Technology is selling off its state and local health and human services business to Veritas Capital for $5 billion in cash which it says it will use to pay down debt as it looks for buyers of two other units.
The health care business was priced at more than three times its annual revenue of $1.4 billion, DXC said.
“I’m pleased that we continue to execute the plan that we outlined in November, especially in this volatile environment,” said DXC CEO Mike Salvino in a statement. “The transaction is an important first step in our business and focusing on the enterprise technology stack. The transaction progressed much faster than we originally anticipated, but we are absolutely delighted to partner with Vertias Capital. The leading investor in health care and government sector.”
The deal is expected to close by this December, following customary closing conditions, the receipt of third party consent, and regulatory approvals. The transaction is not subject to any financing conditions, the company said.
This is not the first time Veritas and DXC have worked together.
In 2018, components of Veritas’ business, Vencore and KeyPoint, along with DXC’s federal business, were folded together to create the DXC spin-off Perspecta. In that deal, Veritas was given $400 million as well as 23 million shares of Perspecta stock. Perspecta shares were trading about 2 dollars down from their May 2018 opening price of $24.50.
Former DXC CEO Mike Lawrie – who stepped down in August 2019 – and Veritas CEO Ramzi M. Musallam each currently hold seats on Perspecta’s board.
“The intersection of government, technology and healthcare is a key focus area for Veritas,” Musallam said of Tuesday’s US$5 billion deal in a statement. “By combining the business’ talented employees with our extensive industry experience, we plan to build on the business’ unwavering commitment to its customers and leadership in mission critical healthcare technology to drive continued improvement in the quality of healthcare for citizens nationwide.”
After opening the year at US$36.76, DXC stock has been pummeled since then, closing at an all-time low of US$15.64 on Monday, a 57 percent tumble. But news of the deal invigorated the firm’s share price, which rose to US$19.60 in after-hours trading.
DXC Technology is a global solution provider formed in the 2017 merger of HPE Enterprise Services and CSC. Including its health care business, its horizontal BPS (business process services) business; and its workplace and mobility business, are being sold.
“We are continuing to pursue strategic alternatives to the other two assets,” DXC CFO Paul Saleh said yesterday. “Our plan is to use any proceeds from those transactions to primarily reduce debt.”
Saleh said this is a change to the capital allocation model the company used in the fiscal 2022 framework that it gave in November, so the company was scrapping that 2022 guidance.
At that time, DXC told investors that by fiscal year 2022 it planned to have in excess of US$15 billion in revenue with at least half the revenue coming from digital offerings. DXC added that in 2022 it expected margins to be at least 12 percent, even after accounting for investments, and it will be able to generate net capital proceeds of about US$5 billion for these three businesses, Saleh said at the time. DXC hoped to deploy US$4.25 billion or more to repurchase shares and pay dividends “over the next 10 quarters," he said.
However, Saleh said the company is on track for fiscal 2020, which ends in May.