Business plans for Leidos and SAIC take shape as split is set for Sept. 27

September 15, 2013

The path forward for Science Applications International Corp. took clearer shape last week as the contracting giant announced a Sept. 27 effective date for its forthcoming split into two companies and as leaders unveiled business plans for each entity.

The McLean-based firm’s board of directors approved the spinoff of its information technology business, a move that makes official a plan the company announced last August. The technology solutions business will be named Leidos, while the government services business will retain the SAIC name.

On the same day the separation goes into effect, stockholders will receive a pro rata dividend of one share of common stock in the company that retains the SAIC name for every seven shares of common stock held with the existing company as of Sept. 19.

On Sept. 30, Leidos’s stock will begin trading on the New York Stock Exchange under the ticker symbol LDOS, while SAIC will begin trading under SAIC.

“This strategic decision by our board culminates a year of hard work and continued performance by our dedicated employees,” said Stu Shea, future president and chief operating officer of Leidos.

A team of 50 staffers had been working on the project to divide the company, which was known internally as Project Gemini.

At an investor event on Wednesday, the future companies’ leaders laid out their visions, emphasizing that the new setup will allow them to expand into new markets where previously they might have been impeded by what are known as organizational conflicts of interest. For instance, companies typically are barred from holding contracts to both build and test a new system.

Shea outlined three sectors that will be Leidos’s key areas of focus: National security, health and engineering.

Of the $6 billion in revenue Leidos is expecting for 2014, national security work would account for about $4 billion, or 68 percent. That team is to include 13,500 of Leidos’s 23,000 staffers, making it the firm’s largest division. The health and engineering divisions are expected to bring in a combined $2 billion in revenue and to be comprised of 9,500 employees.

Shea aimed to make the case to investors that Leidos would not repeat some of the mistakes that caused SAIC to stumble in the past, such as pursuing work even if it didn’t necessarily fit strategy.

“The 1,000 flowers blooming model of the past is done,” Shea said at the New York event. “No longer will we chase revenue because of our entrepreneurial spirit.”

Instead, Shea promised that Leidos would stay “laser-focused” on the three core businesses, and try to be entrepreneurial and creative only within those areas. He also promised to have tougher standards for defining what falls into the boundaries of the core sectors.

Shea said Leidos would shift focus away growing top-line revenue to concentrate on increasing profits. And he repeatedly touted an emphasis on returning cash to shareholders.

“We’re a cash machine. But we will not be holding excess cash on the balance sheet,” Shea said.

SAIC, restarted

The other company, “new SAIC,” as it was dubbed in the investor presentation, will be a $4 billion business with about 14,000 employees.

At the Wednesday presentation, a video was played for the audience that described the company as, “Not a start-up. Restarted.”

Future chief executive Tony Moraco stressed throughout his remarks to investors that the firm may have a new stock ticker symbol, but it is hitting the ground with a host of long-standing client relationships and thousands of experienced workers.

Moraco said he will push to grow the new SAIC’s customer base. Unburdened from some previously existing conflict-of-interest concerns, the company estimates it can now go after $25 billion in market opportunities that previously would have been off-limits.

In addition to adding new customers, the company said it would aim to be a one-stop shop for existing customers, moving to offer them a full range of services.

Moraco’s company will be divided into two sectors: Enterprise information technology, led by Nazzic Keene, and technical and engineering, led by Deborah James.

Moraco stressed that new SAIC’s success will in part hinge on its ability to excel in today’s business climate, in which the customer is often looking for a bid that offers the lowest price technically acceptable.

“We set up to price to win in this competitive market, but also price to execute,” Moraco said.

He hopes that approach will position the company to build wide profit margins.

Sarah Halzack is The Washington Post's national retail reporter. She has previously covered the local job market and the business of talent and hiring. She has also served as a Web producer for business and economics news.
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