U.S. technology services provider Computer Sciences Corp (CSC.N) will sell its credit services unit to business information provider Equifax Inc (EFX.N) for $1 billion in cash.
The credit services unit provides financial services and consumer credit information to the automotive industry, banks, retail establishments, mortgage companies, medical entities, and utilities in the United States.
CSC shares were up about 4 percent at $39.54 on the New York Stock Exchange, while Equifax shares were up about 5 percent at $53.71 on Monday afternoon.
"We had a contract with Equifax which strategically did not give us a lot of flexibility in terms of how we could leverage this asset going forward," CSC Chief Executive Mike Lawrie said on a conference call.
CSC had signed a pact with Equifax in fiscal 1989 to buy and sell credit reports. CSC had at that time also acquired an option, set to expire on August 1, 2013, that would require Equifax to buy its credit reporting business if the unit was not sold by then. r.reuters.com/kum44t
CSC said it did not exercise this option.
Morningstar analyst Brett Horn, however, said Equifax was obligated to buy the unit. "I think probably knowing that the expiration date was coming up, they just decided to pull the trigger and not wait till the very end."
CSC said in May that it was looking to sell its "non-core" assets and would cut costs by $1 billion over the next 12 to 18 months.
"This is a significant divestiture for them. Mike identified pretty quickly that this business really wasn't core to CSC," a source close to the matter told Reuters.
CSC appointed Mike Lawrie as CEO in February and he joined the company in March.
Morningstar Inc analyst Swami Shanmugasundaram hailed the deal, saying the credit services unit is not related to the rest of CSC's business.
"I think CSC is trying to get back to its core business - IT services," he said.
CSC, currently valued at about $5.91 billion, said the sale of its credit services unit would help it focus on its technology solutions and services business.
The deal is expected to close this month and CSC expects to record after-tax proceeds of about $750 million to $800 million, the company said in a statement.
CSC said it intends to use about $300 million to $400 million of the proceeds to buy back shares, and contribute another $300 million to $400 million to its pension plans.
CSC's underfunded total global pension liability was about $1.30 billion, of which about $900 million was in the United States, the company said on the conference call.
Jefferies & Co analyst Jason Kupferberg said CSC's credit services business was extremely profitable.
"We'd expect the transaction to be dilutive, and it will also put more pressure on CSC's core IT solutions/services business to perform," Kupferberg wrote in a note to clients.
CSC's business solutions and services unit, which includes the credit services business, contributed 23 percent to its total revenue in 2012.
Equifax said it expects the deal to add 45 cents to 50 cents per share to 2013 adjusted earnings and between $115 million and $125 million to revenue.
Barclays was the financial adviser to CSC, while Blackstone Advisory Group worked with Equifax. Bank of America N.A., JP Morgan Chase Bank N.A., SunTrust Bank and Wells Fargo Bank N.A. provided financing to Equifax.
(Reporting by Chandni Doulatramani in Bangalore and Nadia Damouni in New York; Editing by Don Sebastian and Supriya Kurane)