Daily Management Review

HP Enterprise is selling its software development division


09/02/2016


American technology company Hewlett Packard Enterprise wants to sell its software development division. According to sources, the company hopes to gain $ 8-10 billion. List of the potential buyers consists of a number of private investment funds, including Thoma Bravo and Vista Equity.



HP Enterprise is selling its software development division
Hewlett Packard Enterprise was established in October last year after a spin-off of Hewlett Packard Corporation into two independent companies. HP Enterprise manufactures computer hardware, software and services for business. Earlier this year, some of the business units that produce a variety of services for other companies have been isolated and combined with Computer Sciences company. Last year, revenues of the software development division amounted to $ 3.6 billion, or 7% of total group revenues. According to Toni Sacconaghi, an analyst at Sanford C. Bernstein, HP Enterprise’s decision to sell this division is not unexpected. 

The report said that Thoma Bravo, which annual income is $ 3.6 bln., offered the highest price. Vista Equity Partners, Carlyle and TPG Capital had similar discussions with the seller. In the course of negotiations organized by Goldman Sachs, HPE has received price offers up to $ 7.5 billion. 

HPE may still refuse Thoma Bravo, or else Thoma Bravo could just buy some of HPE’s business assets, writes Reuters.

Wall Street reacted on the news favorably: HPE shares rose by 3.2%, to US $ 22.16 per share after appearance of Reuters’ report on Thursday afternoon. This is the highest price at which HPE shares ever traded after separation from HP Inc. last year.

HPE Software’s portfolio of products consists mainly of assets acquired in purchase of Autonomy company for $ 10.3 billion In 2011, and purchase of Mercury Interactive for 4.5 bln. in 2006. Also, the company includes big data analytics platform Vertica and product line of cyber security firm ArcSight.

HPE was created in 2015 along with HP Inc. after a spin-off of its parent company Hewlett-Packard, manufactured technics since 1939. HP Inc. inherited all assets on development and production of personal computer systems and printers, while HPE got all corporate business of the predecessor. 

The spin-off was explained by a long-term deterioration of Hewlett-Packard’s financial performance. For example, results of 2013-2014 fiscal year showed that the company's revenue decreased by 1%, while profits fell by 2%. Meg Whitman, took over the company in 2011, was not able to achieve better financial results. After that, it was decided to divide the business and activities to focus on different areas, as well as to conduct mass layoffs of staff and other restructuring activities.

After dividing, HPE received $ 53 billion, and HP Inc. - $ 57.3 billion. HPE employs about 240 thousand people.

In May 2016, HPE transferred its corporate IT services division HPE Enterprise Services Company to its competitor, Computer Sciences Corporation, and received a 50% stake in the joint venture. Value of the new company amounted to $ 9 billion. The merger was carried out under Reverse Morris Trust scheme, which allows combining businesses without paying taxes.

source: wsj.com, reuters.com






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