Less than a year after a landmark split halved Hewlett Packard into two $50 billion companies, the software half is at it again. Following the completion of the transaction next year, CSC’s current president and CEO Mike Lawrie will continue to head up the new company, though the new brand has not been released as of yet. The company’s IT services operation, and its 100,000 employees, will merge with Computer Sciences, already one of the largest consulting and services companies in the tech sector. This would create a new $26 billion entity, with expected synergies worth $8.5 billion.
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Jefferies & Co gave shares of Hewlett Packard Enterprise a price target of 24 indicating a possible upside of 36.56% from Hewlett Packard Enterprise’s existing share price of 17.58.
However, revenue from the enterprise services business, which the transaction values at about United States dollars 8.5 billion after tax, fell 2 percent at USD 4.7 billion year-over-year.
This new company will have annual revenues of $26bn, with 95 data centres and more than 5,000 clients in 70 countries.
Within Enterprise Group, HPE’s server revenue was up 7 percent, Storage revenue was up 2 percent, Networking revenue was up 57 percent, and Technology Services revenue was down 6 percent.
“As two standalone companies with global scale, strong balance sheets and focused innovation pipelines, both HPE and the new company that combines CSC and HPE’s Enterprise Services segment will be well positioned as leaders in their respective markets”.
Mike Lawrie, current CSC CEO, will become chairman, president and CEO of the new company and Meg Whitman, HPE president and CEO, will join the board, which will be evenly split between directors nominated by HPE and CSC. The merger is also meant to be free of any tax implications to both companies.
Hewlett Packard Enterprise Co (NYSE:HPE) reported that its net earnings for the second quarter ending on 30 April 30, 2016 increased to $320 million from $305 million in the prior year.
HPE said it expects to complete the “spin-merger” by March 2017.
However, software continued its downturn, with revenue dropping 13.2 percent and enterprise group operating margin was at 11.7 percent versus consensus’ 13.6 percent.
Computer Sciences Corporation (NYSE:CSC) shares jumped over 34% during the early trading hours today, as the company announced that it will take over Hewlett Packard Enterprises’ to-be-spun-off $18-billion service business. “As a more powerful and versatile global technology services business, the new company will be well positioned to innovate, compete and serve clients in a rapidly changing marketplace”.
In announcing the deal, both companies talked about transformation and that his was the next logical step for both.
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According to HPE, this deal will save approximately $1 billion in operating costs.
