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DXC Technology to Combine its US Public Sector Business with Vencore Holding, KeyPoint Government Solutions
Thursday 12 October 2017

12 October 2017 - US-based IT services company DXC Technology's (NYSE: DXC) board of directors has unanimously approved a plan to combine its US Public Sector business with Vencore Holding Corp. and KeyPoint Government Solutions to form a separate, independent publicly traded company to serve US public sector clients, the company said.
Both Vencore and KeyPoint are currently owned by affiliates of VeritasCapital, a private equity firm. Veritas Capital will remain an investor in the new company.
The formation of the new company is expected to be completed by the end of March 2018, subject to regulatory and other approvals.
Under the deal, DXC's shareholders will receive shares of USPS via a spin-off and will own approximately 86% of the combined company's common shares upon consummation of the transactions.
Funds managed by Veritas Capital and its affiliates will own approximately 14% of the combined company's common shares upon consummation of the transactions, and will receive USD 400m of cash merger consideration.
USPS will distribute USD 1.05bn in cash consideration (or assumed debt) to DXC. DXC will use proceeds from the transaction to reduce debt, repurchase shares, and for other general corporate purposes.
Veritas Capital's Ramzi Musallam will join the board of the new company, with remaining board members named at a later date; and
The contemplated transactions will be structured as a "Reverse Morris Trust" transaction, with the separation of USPS and the related mergers with Vencore and KeyPoint being tax free to DXC and its shareholders.
Vencore and KeyPoint have each received the necessary shareholder approvals to complete the transactions. The closing of the transactions will be subject to various customary closing conditions, including regulatory approvals, receipt of a tax opinion, and the effectiveness of the registration statement with respect to USPS common shares being distributed to DXC shareholders.
The combination of USPS with Vencore and KeyPoint will create a top 5 services provider to the US government, offering differentiated, mission-driven solutions in cybersecurity, big data analytics, cloud engineering, enterprise IT services, and systems engineering all enabled by a portfolio of Intellectual Property.
This new company will be a strategic partner to the federal government in solving the most demanding informational and national security challenges and driving technology modernization.
With approximately USD 4.3bn in combined revenues and a highly skilled workforce of more than 14,000, the new company will serve a robust base of established and non-overlapping clients based on long-standing relationships.
The new company will provide meaningful scale and end-to-end technology solutions, leveraging a full spectrum of offering families and industry expertise to ensure broader access to customers, capabilities and contract vehicles. The new company's name will be determined at a later date.
Mac Curtis, president and CEO of Vencore, will become the chief executive officer of the new company.
Marilyn Crouther, senior vice president and general manager, DXC USPS, will become the new company's chief operating officer. Mike Lawrie will chair the board of the new company.
Additional members of the new company's senior management team will be drawn from DXC, Vencore and KeyPoint and will be named at a later date as integration planning progresses.
DXC, which was formed by the merger of CSC and the Enterprise Services business of Hewlett Packard Enterprise on April 1, 2017, will remain in commercial and non-US public sector IT services.
Following the expected transaction, DXC will have 6,000 clients in some 70 countries throughout the world.
Guggenheim Securities is acting as exclusive financial advisor to DXC. Latham and Watkins is acting as primary legal counsel to DXC. Skadden, Arps, Slate, Meagher and Flom is acting as tax counsel to DXC, and Wiley Rein and Crowell and Moring are acting as governmental counsel to DXC.
Stone Key Partners is acting as financial advisor to Veritas Capital, Vencore and KeyPoint. Schulte Roth and Zabel and Skadden, Arps, Slate, Meagher and Flom are acting as primary legal counsel to Veritas Capital, Vencore and KeyPoint. Covington and Burling is acting as governmental counsel to Veritas Capital, Vencore and KeyPoint.
Details
Date Published: 12/10/2017
Target: DXC,  Technology/US Public Sector business
Country: USA
Deal Size: 1.05bn (USD)
Sector: IT/Online Services
Type: Divestment
Financing: Cash
Status: Agreed
Vendor: DXC,  Technology
Buyer: Vencore,  Holding, KeyPoint Government Solutions
Buyer Advisor: Stone Key Partners , Veritas Capital , Vencore , KeyPoint , Schulte Roth and Zabel , Skadden, Arps, Slate, Meagher and Flom , Covington and Burling
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