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SAIC weighing whether to keep both companies in McLean

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McLean-based Science Applications International Corp. surprised many when it said late last month it would split into two companies — a $4 billion services business and a $7 billion technology business focused on areas such as intelligence and health IT.

The move closely followed the appointment of John P. Jumper as chief executive. When Jumper became CEO, he quickly promoted K. Stuart Shea, formerly president of SAIC’s intelligence, surveillance and reconnaissance group, to chief operating officer.

Capital Business sat down with Shea, who came to SAIC from TASC in 2005, last week. What follows are excerpts from the conversation.

How did you come to this decision?

In around March [2010], we predicted there were going to be a lot of challenges in the marketplace. We spent some time thinking through our strategy and went through a number of options. Do you sell the company? Do you transform the company through divestitures and big acquisitions? Do you just reorganize? In February of this year, we finally made the presentation to the board. In our view, the greatest impact was not to sell off a piece of business, not to dilute who we were by just acquiring another big company, but to really think through our strategy around our high-growth markets of cyber [intelligence, surveillance and reconnaissance]; health; energy; and logistics, readiness and sustainment. We said let’s structure a plan that separates [SAIC] into [two] companies that both have scale, both have magnitude, both have the ability to compete on their own.

Some observers have said you’re positioning SAIC for a sale. Is that the intent?

We have no desire to sell any piece of the company. If we wanted to sell it, we would’ve set up a business for sale. We actually have a lot of faith in the businesses, but they were different businesses. By having a business of a minimum of $4 billion to $4.5 billion in size, it makes it really hard for somebody to acquire it. If we had spun out a $500 million piece of a business or a $1 billion piece of business, somebody could acquire it. We didn’t want that to happen.

About a year ago, Walt Havenstein, SAIC’s previous chief executive, said he had been trying to integrate the business more. Is this a repudiation?

It’s a natural evolution. We’ve been an entrepreneurial, disaggregated organization, where everybody pursued business independent of each other. If you think about 40,000-plus employees, it was almost 40,000 businesses. What Walt tried to do was to unify us, so that we had the power of focus around certain high-growth markets. What happened though is as you do that you realize, wow, we’re really just two big companies now and we need to disaggregate those.

What’s the process now?

The mechanics of that process is allocating every single thing that’s in SAIC today to either company A, company B or nothing. [Take] the SAIC name. I can guarantee you that one of the two companies will be named SAIC; I just can’t tell you which one. We haven’t made that determination yet. We’re going through that process of being almost agnostic and ecumenical and deciding what both companies need to be successful.

Can you guarantee that one of the companies will be based here?

I believe in my heart that one of the companies will be based probably on this floor in this building. I don’t see any change in that. I don’t know if both companies will be based here, and that’s because the companies have very different needs. The solutions company has a higher cost structure and therefore can maintain a cost structure that’s commensurate with a location like this. The services company will have a lower cost structure. Why would you want to spend all of your cost by having a nice building in McLean when you could move someplace 10 miles from here or 100 miles from here? A cheaper place, because it’s the nature of the business.

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