Jana Takes Perspecta Stake to Push for Change, Possible Sale

(Bloomberg) -- Activist investor Jana Partners has disclosed a new position in Perspecta Inc. and said it plans to push for changes at the government services contractor, including a potential sale of the company or merger with another firm.

The New York-based hedge fund, run by Barry Rosenstein, said in a regulatory filing Thursday that it owned a 5.9% stake in Perspecta. Jana said it believes the company is undervalued and plans to meet with its leadership about ways to improve performance.

Perspecta’s work for government agencies ranges from investigative services and IT strategy to systems and engineering, according to its website. A representative for the Herndon, Virginia-based company didn’t immediately provide a comment.

The company’s shares fell 8.8% to $21.06 in New York trading Thursday, giving the company a market value of $3.4 billion.

Jana has a history of investing in the sector. In 2015, it took a stake in Computer Sciences Corp. before it split the business in two, with one part for commercial services and the other government services. CSRA Inc., as the government business was later renamed, provides similar services to Perspecta and was sold to General Dynamics Corp. in 2018 in a deal valued at about $9.7 billion.

The remaining Computer Sciences business was merged with Hewlett Packard Enterprises Co.’s IT services business in 2016, creating DXC Technology Co. DXC spun off the government services operation it inherited from HP and merged it with two portfolio companies of the private equity firm Veritas Capital Management, creating Perspecta in 2018.

The sector has been consolidating in recent years. In 2018, U.S. defense contractor CACI International Inc. submitted an overbid for CSRA in an attempt steal it from General Dynamics, which eventually won the deal after increasing its bid. Another government services provider, Science Applications International Corp., acquired Engility Holdings Inc. in a deal completed last year.

Shares of Perspecta, which in February lost the bidding for a lucrative U.S. Navy contract, have fallen 19% this year. The company could remain an attractive takeover target, though, because the contract’s overhang on its stock has been eliminated, allowing for an easier valuation of its business.

This month also marks the two-year anniversary of the company’s spinoff from DXC, which eliminates many of the negative tax implications of a takeover. In addition, the bulk of its government services contracts are fixed price, allowing an acquirer to retain any cost savings resulting from a deal rather than giving them back to the government as required with so-called cost-plus contracts.

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