CSC and HP Enterprise ink deal for technology services goliath

For months, there was great excitement among the companies that provide technological services to companies, government agencies and large organizations, and the largest may have come last week, with wide ramifications for companies in the Washington region.

Tysons Corner-based Computer Sciences Corp. announced its merger with the company Hewlett Packard Enterprise Services Co. of Plano, Texas, in that the company executives said they would create the world’s largest pure IT services company with $ 26 million in revenue.

The agreement would make the shareholders of both companies 50-50 partners in the new goliath, who has not been named yet, install and CEO Mike Lawrie as CSC chairman and CEO. Meg Whitman, HP Enterprise head, take a seat on the board.

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The agreement comes as the industry technology services was confused by the upheavals companies, driven by changes in the business for cloud computing Internet and the arrival of new rich who can offer similar services a much lower cost.

Dell, for example, has announced plans to acquire EMC for $ 67 billion. SAIC based in McLean is divided into two, turn a company called reading. And CSC and HP Enterprise are the product of the above corporate maneuvers.

CSC recently divided itself in two, forming a company focused on business customers and governments around the world, and the other serves federal agencies. HP also divided, creating a company focused on the business market and around printers and computers. After the merger, HP Enterprise would focus on software, servers and IT platform in the cloud.

“The industry is consolidating,” Lawrie said in an interview, “and we begin to see that the old cluster model is not technology for both and a whole lot more focused technology companies.”

Companies that have yet to say where the company resulting from the merger is based, said they expect reduced the combined company at $ 1 billion, in large part by the consolidation of real estate, costs and activities of acquiring data centers.

Less clear is what would happen on the side of the HP Enterprise services company focused on the federal undertaking. As part of its decision to split into two, CSC has decided not to compete for two years against his former arms against the government, which is now called SCAR (after the first spin-off of CSC merged with based SRA International Falls Church).

“HP Enterprise Services has a strong business in the federal government, and what I would say is after closing all options, and I emphasize the word” all options “are on the table,” he said Lawrie analysts .

Meanwhile, the leaders said they are excited about the prospects of creating a giant computer services, serving 5,000 organizations in 70 countries. Lawrie said CSC is a services company with $ 8 billion global forces insurance, healthcare and financial services.

HP Enterprise is an IT company of $ 18 million that has a strong presence in sectors such as transport, pharmaceuticals, technology, media and telecommunications. CSC has an IT partnership Cloud with Amazon Web Services and HP Enterprise is a Microsoft Azure offering.

Lawrie told analysts that the new company would be able to operate “independent of any single hardware provider, establishing appropriate partnerships for success.”

“The part of the financial engineering of this [agreement] is brilliant,” said Darrin Peller, senior analyst at Barclays IT services. “They are able to find two entities who fought so hard to get rid of areas that been trivialized and reinvest in the digital offering.

“I think when you put the two together, you get almost the same profile as the CSC with a scale much more. They can do more now much more customers.”

The transaction, structured to be tax-free, is valued at $ 8.5 billion and HP would shareholders of a share of $ 4.5 billion in the new company, a cash dividend of 1.5 billion $ and the assumption of $ 2.5 billion of debt and other liabilities HP Enterprise. The transaction should be completed by the end of March.

“By bringing together the best of both organizations, we will create a leader in pure-play ready services to compete and win against all current players,” said Whitman analysts. “The new company will have greater agility, concentration and the ability to drive faster results for our clients. ”

Lawrie came to CSC in 2012, the company prepared their balance after $ 4 billion in losses from a series of contracts with problems. It reduces costs and cutting staff worldwide from 95,000 to 68,000, including the halving of the workforce in the Washington area.

Since then, the stock price has doubled, and Barclays raised its estimate of earnings per share for the next after news of the split .

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