SAIC to split into 2 companies

Friday - 8/31/2012, 4:08pm EDT

John Jumper, chairman and CEO, SAIC

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Science Applications International Corporation, one of the largest government contractors, has announced plans to split into two independent public companies.

SAIC's board of directors approved the spin-off following a strategic review of the firm, according to a company release. The split is expected to take place in the second half of fiscal 2013.

"We put the strategy together and realized that upcoming government budget pressures was going to necessitate some sort of move to make ourselves and keep ourselves in a competitive position," said John Jumper, SAIC's chairman and CEO, in an exclusive interview Friday on In Depth with Francis Rose.

John Jumper, chairman and CEO, SAIC

One of the companies will focus on technical services, including program support and systems engineering and technical assistance. The other will focus on emerging areas, including cybersecurity, health IT and national security technologies.

"Our two new companies will be designed so that their businesses can be more differentiated and more competitive in their own space," Jumper said in a release.

The split would also free the company from what he called the "burden" of organizational conflicts of interest (OCI).

Contracting regulations forbid, for example, a company from advising the government on the technical requirements of a contract and then submitting a bid to actually do the work.

"We will take those pieces of the business that are normally located on the services side, where we do a service for an organization where we sort of do evaluation or testing," Jumper said. "And on the other side of the business, on the solutions side, we would be doing building or manufacturing or other sorts of material product."

The spin-off "affords both companies an excellent opportunity to combine optimized cost structures, unrestricted access to their respective markets, and the leveraging of decades of SAIC's scientific and engineering excellence to unleash the growth and value we can deliver to our customers, employees and shareholders," Jumper said.

Both Northrop Grumman and Lockheed Martin have also spun off business areas in the past few years due to OCI regulations.

The split opens SAIC to a range of opportunities in areas like electronic warfare and federal aviation, Jumper said. Previously, the company was excluded from pursuing those opportunities due to some of the services it offered, such as test- and-evaluation.

"This amounts to over $20 billion in opportunities of addressable market we've denied ourselves," he said. "It's going to open huge doors for us and we hope to be able to compete there."

SAIC is one of the 10 largest U.S. contractors based on total contracting dollars obligated, according to data on USASpending.gov. For fiscal 2012, the company holds contracts worth more than $4.4 billion.

Following its announcement Thursday, SAIC shares rose 5 percent Friday, according to the Associated Press.