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HPE to merge IT services unit with Computer Sciences

Hewlett Packard Enterprise splits again, this time merging its IT services business with Computer Sciences Corp

Hewlett Packard Enterprise announced last night that it is to spin off its troubled IT services business with Computer Sciences Corp (CSC).

The merger will further CSC’s evil master plan to take over IT services world. The combined company is expected to have annual revenues of $26bn and more than 5,000 clients in 70 countries.

The spin off comes as HPE attempts to streamline its operations, focusing all of its efforts on its cloud services biz and other high-growth areas. In April, the company sold the majority of its stake in Indian IT services provider Mphasis for $1.1bn. HPE will retain its storage, networking and server businesses, as well as its Helion cloud platform. The trimmed down business will be worth circa $33bn in revenue.

“The ‘spin-merger’ of HPE Enterprise Services with CSC is the right next step for HPE and our customers,” said HPE CEO Meg Whitman. “Enterprise Services’ customers will benefit from a stronger, more versatile services business, better able to innovate and adapt to an ever-changing technology landscape. As two companies with global scale, strong balance sheets and a focus on innovation, both HPE and the new company will be well positioned as leaders in their respective markets.”

The merger is expected to close by March 2017 and will produce cost synergies in the region of $1bn over the following 12 months.

CSC chief exec Mike Lawrie will become CEO of the new company and, with approximately 50% of the new company going to HPE shareholders,  Whitman will also join the board. Mike Nefkens, the current executive vice president and general manager of HPE Enterprise Services, will become a ‘key part’ of the new company’s executive team, CSC said in a statement.

“Our proposed merger with HPE Enterprise Services is a logical next step in CSC’s transformation,” Lawrie said. “As a more powerful and versatile global technology services business, the new company will be well positioned to innovate, compete and serve clients in a rapidly changing marketplace. 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 and collaboration with HPE.”

Kate Hanaghan of analyst firm TechMarketView expressed reservations about the merger.

“While the merger makes sense on paper, we do have some serious reservations about how this will play out in reality,” Hanaghan said. “In particular, the task to make the transaction work will be a huge distraction, and therefore an opportunity for competitors to take advantage. We also have to consider the impact on customers – although Lawrie offers assurances that all will be well.”

The announcement comes six months after CSC separated into two publicly traded companies: CSC, to serve commercial and government clients, and CSRA, to serve the US public sector. The post-separation strategy outlined the need to bolster the firm’s services portfolio through aggressive acquisitions; and having snapped up Xchanging, UXC, Fixnetix and Fruition Partners, CSC is executing on that strategy something fierce.

The IT services giant also just announced its acquisition of Aspediens, a European service-management solutions provider.

“Clients are feeling the pressure to digitally transform their enterprises to meet new business demands and customer expectations,” Lawrie added. “They need a partner with the innovation, scale, leadership and dependability to answer the challenge.”

“As a pure play, the combined company will be built to lead digital transformations using next-generation technology solutions from both companies. It will be able to operate independent of any single hardware provider, while partnering with the world’s leading technology providers, including HPE.”

Shares of HPE rose 10.5% in extended trading on Tuesday, while shares of CSC jumped 19.5%.

 

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