Wednesday, May 25, 2016 12:56:40 PM
HPE Services Spinoff, CSC Merger
The surprise move by Hewlett Packard Enterprise (HPE) to spin off and merge its enterprise-services division with Computer Sciences Corp. (CSC) could put pressure on IBM (IBM) to respond, analysts say.
Shares in Hewlett Packard Enterprise jumped 9% in afternoon trading on the stock market today after HPE late Tuesday announced the tax-free spinoff of its services business. HPE also reported better-than-expected fiscal Q2 earnings, but EPS was still down 2% year over year.
“We believe the HPE Services plus CSC transaction will cause Xerox (XRX) services to be looked at as an acquisition target, as well as put pressure on IBM to consider making acquisitions in its services business,” Citigroup analyst Jim Suva said in a report.
The combination of HPE’s enterprise services business and Computer Sciences will have about $26 billion in annual sales. The deal is expected to close in March 2017.
“We believe the combined firm will trail only IBM Global Services and Accenture (ACN) in terms of global IT Services revenue,” Kupferberg said in a report. “While neither CSC or HPE enterprise services are industry growth leaders and have been in turnaround mode, we see strategic rationale for the merger, given the complementary vertical exposures (CSC strong in insurance, health care and banking, with HPE enterprise services known for pharmaceuticals, transportation, and telecom.)”
Hewlett-Packard split into two publicly traded companies last November, with HP Inc. (HPQ) due to report late Wednesday. Shareholders of HP Enterprise and CSC will each own half of the new company’s shares.
Computer Sciences stock shot up 34% to near 48 intraday. Xerox shares rose 3.3% and IBM 1.9%, while Accenture fell fractionally.
The surprise move by Hewlett Packard Enterprise (HPE) to spin off and merge its enterprise-services division with Computer Sciences Corp. (CSC) could put pressure on IBM (IBM) to respond, analysts say.
Shares in Hewlett Packard Enterprise jumped 9% in afternoon trading on the stock market today after HPE late Tuesday announced the tax-free spinoff of its services business. HPE also reported better-than-expected fiscal Q2 earnings, but EPS was still down 2% year over year.
“We believe the HPE Services plus CSC transaction will cause Xerox (XRX) services to be looked at as an acquisition target, as well as put pressure on IBM to consider making acquisitions in its services business,” Citigroup analyst Jim Suva said in a report.
The combination of HPE’s enterprise services business and Computer Sciences will have about $26 billion in annual sales. The deal is expected to close in March 2017.
“We believe the combined firm will trail only IBM Global Services and Accenture (ACN) in terms of global IT Services revenue,” Kupferberg said in a report. “While neither CSC or HPE enterprise services are industry growth leaders and have been in turnaround mode, we see strategic rationale for the merger, given the complementary vertical exposures (CSC strong in insurance, health care and banking, with HPE enterprise services known for pharmaceuticals, transportation, and telecom.)”
Hewlett-Packard split into two publicly traded companies last November, with HP Inc. (HPQ) due to report late Wednesday. Shareholders of HP Enterprise and CSC will each own half of the new company’s shares.
Computer Sciences stock shot up 34% to near 48 intraday. Xerox shares rose 3.3% and IBM 1.9%, while Accenture fell fractionally.
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