Shares of Unisys were up as much as 70% in early trading Thursday, after the Blue Bell-based IT security and services company said it has agreed to sell its U.S. government contracting unit to SAIC Corp. of Reston, Va., for $1.2 billion.
The cash will free Unisys to build and buy better products for its private-sector and foreign-focused Enterprise Solutions group — while also helping sell more of its licensed Stealth security software, CloudForte automation software, InteliServe managed services and ClearPath processing systems to the government through SAIC, Peter Altabef, Unisys’ CEO, told investors in a conference call.
“The shackles have come off the company,” Altabef crowed. Industry analysts asked if the sale could make Unisys itself a takeover target. Altabef parried the question, saying it’s his priority “to build and strengthen this great company.”
Paying down debt opens “a world of deals,” he added.
Unisys stock reached as high as $17.99 a share in morning trading, up from $10.30 at Monday’s close. That’s the most Unisys has been worth since 2015, the year Altabef took over, except for a brief period in 2018.
The federal contracting business that Unisys is selling accounts for about $700 million of the company’s $3 billion in yearly sales, and almost 2,000 of its 21,000 worldwide employees.
Unisys has a rich lineage. The founders of a predecessor company built the pioneer computer ENIAC at the University of Pennsylvania. But the company’s debt and pension obligations have dragged on Unisys’ performance since it was formed by the merger of computer makers Burroughs and Sperry (successor to computing pioneer Univac) in 1986.
The deal announced Thursday will cut total debt by more than half and free Unisys cash flow for investment in new businesses.
Unisys plans to use sale proceeds to buy back $440 million in senior secured notes; contribute $600 million to pension plans, reducing its unfunded liability to $1.14 billion and covering looming contributions for the next three years. Expected future profits will enable Unisys to fully fund its pensions by 2025. Total Unisys debt will fall to $800 million from $1.9 billion.
Unisys began life in 1986 as a competitor to IBM and Microsoft. But over the next 30 years, sales fell by two-thirds (or more, if you count inflation) and employment by three-quarters as the company shifted from hardware to software, services and security and sold businesses to stay afloat.
The company said the sale price was 13 times the business’ earnings (excluding finance cost), an attractive premium. “This transaction benefits all of our stakeholders,” Altabef said. “We expect to be able to invest more in new solutions,” and gain “the ability to pursue larger deals.”
He added that the company also expects to boost profits, and that its Enterprise Solutions unit raised revenue 4% over the year that ended Sept. 30 even without the cash infusion.
Altabef said Unisys now hopes to speed development and acquisition of artificial-intelligence systems and sensor-based “Internet of Things” applications.
He said some Unisys workers who service federal contracts will remain with Unisys and enjoy “more opportunities,” while others will join SAIC.
As part of the deal, Unisys agreed to limit its pursuit of new U.S. government contracts over the next few years.
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