Investor urges Unisys spin-off

Unisys Corp.'s third-biggest shareholder is demanding that the Blue Bell computer-services firm sell or spin off its profitable U.S. government business, saying such a move could triple the stock price.

MMI Investments L.P., of New York, which owns 9.9 percent of Unisys' outstanding shares, asked the board in a letter to break up the company and expressed "tremendous frustration with the seemingly continuous stream of management, operational and financial missteps" at Unisys.

MMI, owned by New York hedge fund Millbrook Capital Management Inc., said in a regulatory filing yesterday that the company's "ruinous stock-price performance" had eroded investors' faith in management's turnaround plan.

MMI, which owns 34.8 million of the company's shares, said a spin-off would "unlock the value" of the U.S. government business, which is being dragged down by the company's weak technology-and-hardware business.

The separation of the U.S. government business, with about $1.5 billion in annual revenue, could result in a stock price of about $8 to $12, assuming the business trades in line with its peers, the shareholder said.

MMI urged the board to hire an independent investment bank to review strategic alternatives, with a focus on divesting the U.S. government-services business through a sale, tax-free spin-off, or initial public offering.

"In our view, the best alternative would be an initial public offering of 19 percent of the shares of a subsidiary of Unisys comprising all the U.S. government-services business," said a letter from Clay Lifflander, president of Millbrook.

The shareholder demanded a "meaningful response" by Jan. 23 or said it would consider taking action at the forthcoming annual shareholders meeting.

In a statement, Unisys said it was evaluating MMI's letter and "takes investors' viewpoints seriously, and we share their commitment to enhancing shareholder value."

Shares of Unisys, which is in the midst of a multiyear effort to restructure by slashing costs and entering new businesses, have lost 61 percent of their value from a 52-week high of $9.60 on July 5. The stock closed down 13 cents, or 3.35 percent, to $3.75 yesterday.

Unisys chief executive officer Joseph McGrath has been working to reinvent the company since he took the helm in January 2005. The company has cut 6,200 jobs since the beginning of 2006 and transformed itself from a computer-maker known for building one of the first mainframe computers to primarily a services company that designs and installs systems using hardware from other manufacturers.

McGrath has divested unprofitable units and outsourced software development and other client work to lower-cost countries such as India and China.

Unisys employs 2,400 in the Philadelphia area, mostly in Blue Bell and Malvern. Its customers include Sprint Nextel Corp., Citigroup Inc. and Lloyds Bank TSB.

The company reported a third-quarter net loss of $31 million in October.

Jefferies & Co. Inc. analyst Joseph Vafi said the investors believed the "turnaround strategy would take the company to a higher level of profitability and some better growth, and it hasn't happened."

"So now, they are looking at trying to extract some value out of what is actually there," he said in an interview.

Unisys' federal-services business, which provides technical and IT services to the federal government, is attractive and "probably the best piece of Unisys' portfolio overall."

Vafi said, "There are a multitude of options on the table," including a merger or acquisition, sale of certain pieces of the business, or sale of all the business.

But the "challenge" with selling or spinning out the federal business is that that is "where a lot of the profits are." Without the cash flow from the federal business, Unisys might have difficulty sustaining the rest of the business, he said.

"Ultimately, the board is going to decide if the current turnaround strategy is working under current management," Vafi said, "or if they need a new strategy, or potentially a new management team."