HPE splits away from its services division

Approximately eight months after HP separated into two companies (HP Inc. and Hewlett Packard Enterprise) the HPE side is splitting again.

HPE announced it plans to divorce itself from its service arm and have agreed to enter a process of merging it into Computer Sciences Corp. (CSC) of Tysons, Va., for approximately $8.5 billion. HPE’s services division is reportedly a $20 billion enterprise and was at one time EDS. HP acquired EDS back in 2008. As part of this deal HPE shareholders will get control of about half the business.

The new company might have a new name. Both HP and CSC said the name of the new company will be announced at a later date.

HPE is saying this CSC deal is a merger. The multi-national CSC is a professional IT services firm with revenues of more than $12 billion annually. CSC is currently the only hardware independent IT services provider based in North America. That distinction might come to an end if this arrangement gets approval. CSC has some high profile customers such as the U.S. Department of Defense, the CIA and NASA.

CSC CEO Mike Lawrie will continue to run CSC and will also be the chairman. HPE CEO Meg Whitman will have a seat on the board of the newly combined company, according to a published report. CSC’s current CFO, Paul Saleh, will continue in that role after the transaction closes. Mike Nefkens, the current EVP and GM of HPE Enterprise Services, will report to Lawrie and will become a key part of the new company’s executive team.

“The ‘spin-merger’ of HPE Enterprise Services with CSC is the right next step for HPE and our customers,” Whitman said. “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.”

Both companies are saying this deal is complimentary and has the potential to be the world’s largest pure-play IT services companies. The new company is expected to have annual revenues of $26 billion and more than 5,000 clients in 70 countries.

The merger is expected to be completed by the end of March 2017, subject to shareholder and regulatory reviews and approvals. The transaction is intended to be tax-free to CSC and HPE and their respective shareholders for federal income tax purposes.

CSC also went through its own separation six months ago. CSC separated into two publicly traded companies: CSC, to serve commercial and government clients globally, and CSRA, which serves public sector clients in the U.S.

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