The stock was on track for its biggest one-day percentage gain in 11 weeks as of Wednesday morning, with shares trading around $17.75.
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Neither firm has said what the CSC and HPE division will be called, with reports it is now being dubbed “Spinco”.
CEO Mike Lawrie told investors Tuesday the company will consider an undefined range of options regarding Hewlett-Packard Enterprise’s (HPE)’s USA public sector business in conjunction with CSC’s merger into HPE’s enterprise services segment. Both HP and CSC said the name of the new company will be announced at a later date.
“Our proposed merger with HPE Enterprise Services is a logical next step in CSC’s transformation”, Lawrie said in a statement.
As for HPE customers, nothing should change, said HPE.
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. “At a very minimum, the baseline will be maintained and there is an upside in earning more business with CSC”, she said.
HP Enterprise has announced plans to spin off its IT services business in a joint venture with CSC.
The company also added that, as a result of this merger, both the new company and HPE will be “well-capitalized and have capital structures set to take advantage of their distinct growth opportunities and cash flow profiles”.
Within Enterprise Services business, HPE’s Infrastructure Technology Outsourcing revenue was down 1 percent, and Application and Business Services revenue was down 3 percent.
The transaction is expected to deliver approximately $8.5 billion to HPE shareholders on an after-tax basis, including an equity stake in the new company valued at more than $4.5 billion. HPE reported adjusted earnings of 42 cents per share on $12.71 billion in sales for its fiscal second quarter. “We anticipate that the focus on Computer Sciences and the newly combined entity with Hewlett Packard will shift back to a cost takeout story”, Barclays analysts said in an investor note this morning.
HPE, meanwhile, registered a fiscal quarter in line with what analysts expected, its second since it spun off from HP on November 1.
Hewlett Packard Enterprise (HPE) is spinning off its IT services business into Virginia-based IT company CSC.
Net profit was $320 million, up from $305 million in the same quarter a year earlier.
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Hewlett Packard reported solid second-quarter results, posting year-over-year growth for the first time since 2011. It is not the only purchase HP has subsequently spun off: it bought Compaq in 2001 to compete in consumer PCs and printers only to hive them off in the split previous year.
