Unisys asks its investment bank to explore options

Bowing to pressure from an activist investor, Unisys Corp. said today that it had asked its investment banker the Bear Stearns Cos. Inc. to explore ways to boost the value of the Blue Bell company.

The computer-technology-services firm is under pressure from its third-largest shareholder, MMI Investments L.P., of New York, to spin off some operations.

Shares of Unisys, which is in the midst of a multiyear effort to restructure by slashing costs and entering new businesses, were up nearly 6 percent today to more than $4 after the company delayed its annual stockholders' meeting, usually held in April, until July 24. Shares have lost 55 percent of their value from a 52-week high July 5 of $9.60.

The delay will give Unisys more time to "explore certain portfolio-rationalization and other actions that may enhance shareholder value," the company said. Unisys cautioned: "There can be no assurance, however, that any such transaction will be proposed or consummated."

Unisys also postponed the deadline for nominating new directors and for notifications of new shareholder proposals until June 2 to address concerns of MMI Investments, which has recommended that Unisys sell or spin off its profitable U.S. government business, saying the move could triple the stock price.

MMI, which owns 9.9 percent of Unisys shares, said in a separate statement today that it supported Unisys' decision to explore options.

Analyst Jason Kupferberg of UBS Securities L.L.C. said in a research note that the "less bold Unisys' ultimate actions prove to be," and the more the stock languishes, the greater likelihood MMI will "apply further pressure to the board."

MMI, owned by New York hedge fund Millbrook Capital Management Inc., sent a letter to the board last month to urge a review of alternatives, including divesting its U.S. government-services business through a sale, a tax-free spin-off, or an initial public offering.

Separating the U.S. government business, with about $1.5 billion in annual revenue, could result in a stock price of about $8 to $12, the shareholder said.

MMI 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. Unisys chief executive officer Joseph McGrath has worked to reinvent the company since he took the helm in January 2005. Unisys has cut 6,700 jobs, divested unprofitable units, and outsourced software development and other client work to lower-cost countries such as India and China.

Some analysts, including Joseph Vafi at Jefferies & Co. Inc., do not expect Unisys to be sold as a whole. Competitors, such as International Business Machines Corp., want to invest in "faster growth areas" with "higher margins" and a larger software component, Vafi said in a recent interview. "Unisys is battling as hard as they can to get margins to a very, very average level."

Unisys needs to "achieve incremental improvement over time, invest in the business, and find new areas of growth," Vafi said, "be innovative and look at doing more offshore, which they are trying to do, to help the top line grow and help margins expand. It's a matter of time until they get the business growing again."

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.

Shares closed up 5.67 percent, or 23 cents, to $4.29 on the New York Stock Exchange.