Occasionally, we republish blog posts, press releases and other commentaries of interest to the greater Washington business community. This piece is adapted from a post J. Robert Beyster, the retired founder of Science Applications International Corp., wrote for his blog at www.beyster.com.
Iwas surprised, as likely many of you were, by SAIC’s announcement this past week about the company’s plan to split into two independent businesses. According to the articles I have read on the subject, the split will not be 50:50.
Instead, one of the resulting companies will comprise SAIC’s “solutions” business, that is, research, science, and technology for the health, engineering, and national security sectors. This company will have annual revenues of approximately $7 billion a year.
The other company will comprise SAIC’s “services” business, including systems engineering and technical assistance (SETA), program office support, and financial analysis. This company will have annual revenues of about $4 billion a year.
As you know, SAIC has been under pressure from shareholders to improve bottom-line performance. Despite revenue growth of 10 percent for the quarter ending July 31, profits for the quarter were only $110 million — considerably less than the $178 million the company earned in the same quarter a year earlier.
Investors seem to like SAIC’s plan, with the share price rising 40 cents — to $12.21 — the day after SAIC’s announcement, although it is still off from the $18.18 share price that the stock experienced the day of the IPO.
It’s a good thing I’m not in the company, because I would be strongly opposed to splitting SAIC in two. I think the great strength of SAIC is in its size, and in the diversity of talent and the synergy between all the various groups and sectors. Splitting the company will reduce SAIC’s ability to draw from its deep bench of talent and experience. SAIC works very well as an integrated company.
But I am just a voice from the past. The company is not the same one today that I founded and ran for many years, and the government contracting business has changed in the years since I left. It’s my understanding that SAIC is following the example of several other government contractors that have chosen to split along the same lines, including Booz Allen Hamilton, Northrop [Grumman] and L-3 Communications, so I guess they will be in good company.
Lord knows what the split will do to the share price over the long term, whether it will create more value or less. I do know that all of us who still own SAIC stock will be watching these events closely to see how it works out. I wish both of the new companies good luck.
J. Robert Beyster is the author of “The SAIC Solution: How We Built an $8 Billion Employee-Owned Technology Company.”