Daily Management Review

IT Services Unit of HP to Merge with Computer Sciences


05/25/2016




IT Services Unit of HP to Merge with Computer Sciences
With the aim of allowing the company to focus on its cloud services business and other fast-growing units, the struggling IT services business of Hewlett Packard Enterprise Co would be spinned off and would be merged with Computer Sciences Corp, HP said in a recent announcement.
 
Following the announcement there was rise of 10.5 percent in the shares of Hewlett Packard Enterprise in extended trading on Tuesday. Hewlett Packard Enterprise was formed after Hewlett-Packard Co formally split in November last year.
 
Falls Church, Virginia-based Computer Sciences' shares jumped 19.5 percent to $42.60.
 
Hewlett Packard Enterprise has been restructuring its IT consulting and services group under Chief Executive Meg Whitman.
 
In April this year, of the 60.5 percent of its stake in Indian IT services provider Mphasis Ltd, the company sold at least 84 percent of it to Blackstone Group for $1.1 billion.
 
HPE has announced it strategy to concentrate on remaining enterprise group that includes its cloud services business and makes servers, routers and switches and it is expected that the company will have $33 billion in annual revenue after the spinoff.
 
On a constant currency basis, compared to the same period a year earlier, the revenue from the enterprise group business rose about 7 percent to $7.01 billion in the second quarter ended April 30.
 
However there was a fall of 2 percent on a year-on-year basis in the revenue from the enterprise services business that the transaction values at about $8.5 billion after tax. In the previous quarter, the enterprise services business fell 6 percent year-over-year.
 
The merger of the two businesses is expected to produce cost synergies of about $1 billion in the first year after close, expected by March 2017, said HPE which houses the former Hewlett-Packard Co's corporate hardware and services division.
 
Fifty percent of the new company will be owned by HPE and the chairman, president and CEO of the new company would be the Computer Sciences Chief Executive Mike Lawrie.
 
Split evenly, the new company's board will comprise of equal number of directors nominated by HPE and CSC.
 
Chief Financial Officer Tim Stonesifer said on a conference call with analysts that the company expects that the merger would cost the company $900 million in separation charges and of this amount about $300 million will be recorded in 2016.
 
 The total revenue for HPE rose 1.3 percent to $12.71 billion in the second quarter, the company said. It has also added $3 billion to its share buyback. According to Thomson Reuters I/B/E/S, analysts on average had expected $12.33 billion.
 
While RBC Capital Markets is serving as financial adviser to CSC, Goldman Sachs & Co is serving as financial adviser to HPE.
 
(Source:www.reuters.com) 






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