news Hewlett Packard Enterprise (HPE) has announced plans for a “tax-free” spin-off and merger of its Enterprise Services business with CSC that will create a new, as-yet-unnamed company.
HPE said the move is the logical next step for its Enterprise Services segment and would create a “pure-play, global IT services powerhouse”.
“It also allows a standalone HPE to further sharpen its leadership in building the vital end-to-end infrastructure solutions necessary to power the enterprise cloud and mobility revolutions,” the firm said in a statement on 24 May.
The transaction, which is currently expected to be completed by 31 March next year, will leave HPE shareholders owning shares of both HPE and approximately 50% of the new company.
As an added bonus, the transaction is “intended to be tax-free” to HPE and CSC and their shareholders for federal income tax purposes, HPE added.
“The ‘spin-merger’ of HPE’s Enterprise Services unit with CSC is the right next step for HPE and our customers,” said Meg Whitman, HPE President and CEO. “Enterprise Services’ customers will benefit from a stronger, more versatile services business, better able to innovate and adapt to an ever-changing technology landscape.”
CSC Chairman, President and CEO Mike Lawrie commented: “As a more powerful, versatile and independent global technology services business, this new company will be well positioned to help clients succeed on their digital transformation journeys.”
“Together, CSC and HPE’s Enterprise Services will have the scale, foundation and next-generation technologies to innovate, compete and grow in a rapidly changing marketplace,” he said. “We are excited by the great potential this merger brings to our people, clients, partners and investors, and by the opportunity to strengthen our relationship with Hewlett Packard Enterprise.”
On a pro forma basis, the new company – to be headed by CSC’s Lawrie – is expected to have annual revenues of around $26 billion, more than 5,000 customers in 70 countries and employees across the globe.
Additionally HPE’s Whitman will join the board of directors, which will be split 50/50 between directors nominated by HPE and CSC.
CSC’s current CFO, Paul Saleh, will assume the same role in the new company once the transaction is completed. Further, Mike Nefkens, current EVP and GM of HPE’s Enterprise Services business, will be part of the new company’s executive team and partner with Lawrie on building the new entity.
Other executives and directors of the merged company, as well as its name, are yet to be announced.
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.
Further the move is expected to produce first-year cost savings of approximately $1 billion post-close.
HPE said the consolidation of CSC and HPE’s Enterprise Services segment will create a new company of a significant scale “to serve customers more efficiently and effectively worldwide”.
The move is being seen elsewhere as HPE shedding itself of “one of the worst acquisitions in the old HP’s history” – the acquisition of the IT services firm EDS at a cost of $14 billion.
Image credit: HPE