DXC Technologies Accused of Misleading Registration Statement

On March 31, Kingstown Partners Master Ltd. et al. filed a complaint against DXC Technology Company (“DXC”) for securities fraud. The plaintiffs argue that DXC made false claims about the success of its reorganization efforts. Other defendants named in the case include Hewlett Packard Enterprise Company and members of its upper management. The case is being held in the California Northern District Court before Magistrate Judge Virginia K. DeMarchi.

DXC is an information technology company that formed in 2017 from a merger between Hewlett Packard’s Enterprise Services segment and Computer Sciences Corporation, Inc. (“CSC”). According to the complaint, “During the period from March 31, 2017, through August 9, 2019…[the] plaintiffs acquired shares of DXC securities at prices that were artificially inflated as a result of Defendants’ violations of the securities laws.”

The plaintiffs believe that DXC’s violations spawned from their allegedly misleading registration statement, which was issued “to solicit investors to purchase DXC shares and to convince CSC shareholders to vote in favor of the merger.” The registration statement supposedly “touted the more than $1 billion in synergies that DXC would achieve in the first year after the Merger due to a “workforce optimization” plan.” The plaintiffs argue that their plan did not actually occur and costs were not actually aligned with revenue, as represented in the registration statement.

While the plaintiffs acquired DXC’s shares, the company allegedly “engaged in a ruthless cost-cutting and ‘workforce optimization” strategy,” which resulted “in extreme customer dissatisfaction, [and] the departure of key employees.” During this period, however, the defendants “made positive statements about DXC’s staffing and customer satisfaction.” By October and November 2018 there were clear declines in DXC’s share price, which plummeted even further through August 2019. According to the complaint, the extent of the company’s losses was made clear “on August 8, 2019…when [DXC] lowered its 2020 guidance, expecting revenue between $20.2 billion and $20.7 billion, representing a $500 million shortfall from the already disappointing previously-issued guidance.” When this news was released, the company’s shares continued to fall even more dramatically.

As a result of the alleged securities violations, Kingstown Partners Master Ltd. et al. seek an award of damages.