The hardest part about managing the decision to split Science Applications International Corp. into two separate businesses was coming up with a new name — Leidos — for what would become the professional services company, Leidos chairman and chief executive John Jumper said last week.
“If you have a choice between a root canal and naming a company, choose a root canal,” he said. “It was arguably the hardest thing we had to do.”
The company hired a New York branding agency to help with the naming process, extracting Leidos from the word “kaleidoscope” to reflect the diverse nature of both companies’ work.
“Now everyone in the company knows how to spell kaleidoscope,” said Jumper, who reflected on the company’s recent corporate manuevers as part of the Atlantic Council’s Captains of Industry series. “They never knew before.”
Jumper became chief executive of McLean-based SAIC in early 2012 and oversaw the creation of Leidos into a separate company, one of the most dramatic changes to SAIC in its 45-year history. Jumper said Leidos “has been through two years of a very difficult process change in the form of a spinoff,” but did not address specifics such as the departure of Leidos president and chief operating officer K. Stuart Shea, who announced in late March that he was resigning. Shea was widely expected to succeed Jumper after Jumper announced in February his plans to retire. Nor did Jumper discuss the weak earnings that Leidos reported for the final quarter of fiscal 2014, during which profits dropped 75 percent compared to the same period in 2013, and revenue dropped 18 percent compared to the same period in 2013.
Jumper said one of the main drivers of the spinoff was conflicts of interest: SAIC had become so big that it was canceling itself out of a lot of potential new work.
“Between the services side of the company and the solutions side, you had conflicting interests,” he said. “[Having] two people sitting behind a work station on an electronic warfare range evaluating electronic warfare equipment on aircraft meant you couldn’t bid on any of the hardware or pieces of software development that went into that electronic warfare. You’re opting out of multiple tens of millions of dollars of potential business because you had two people over there evaluating.”
SAIC considered several restructuring models — a holding company, a tax-avoiding Reverse Morris Trust split, and a sale of Leidos — before deciding on the spinoff model. The other options either had tax consequences or didn’t sufficiently address the conflict of interest issue, Jumper said.
Jumper reiterated a point that many executives at defense contractors have been making for years, saying he is concerned about the shrinking defense budget.
“If you look forward now there is really no decrease in the threat that goes along with the cuts we’re seeing in the budget,” he said. “I do worry we are going to be ill-prepared with the right set of options. . . . Having said that, it’s hard to argue that for $450 billion a year, we can’t provide adequate defense for the nation.”