NEW YORK • Hewlett Packard Enterprise (HPE) will merge its technology-services division with Computer Sciences Corp, moving out of another shrinking business as it focuses on selling hardware and software to corporations.
The combination will be a stock-for-stock exchange with an expected value for shareholders of US$8.5 billion (S$11.7 billion), according to a statement on Tuesday.
Computer Sciences Corp (CSC) chief executive officer Mike Lawrie will lead the new company. Shares of HPE, which also reported better-than-estimated second- quarter earnings, jumped 11 per cent in extended trading, and CSC stock surged 23 per cent, according to Bloomberg.
The move is evidence of ongoing turmoil in the corporate computing market as business spending tightens and traditional data centres give way to cloud computing, The Wall Street Journal reported.
HPE faces increasing competition from cloud-computing vendors including Amazon.com Inc and Microsoft Corp that sell metered access to raw computing power over the Internet. Customers must decide whether to opt for cloud services, maintain conventional data centres, or build their own private cloud-like facilities - a business especially targeted by HPE.
Under chief executive (CEO) Meg Whitman, HPE has been restructuring its IT consulting and services group. The firm sold at least 84 per cent of its 60.5 per cent stake in Indian IT services provider Mphasis to Blackstone Group for US$1.1 billion last month, Reuters reported.
HPE will shed a business that accounts for roughly 100,000 employees, or two-thirds of the Silicon Valley giant's workforce.
The company is expected to have US$33 billion in annual revenue after the spin-off and will concentrate on its remaining enterprise group that includes its cloud services business and makes servers, routers and switches.
Revenue from the enterprise group business rose about 7 per cent to US$7.01 billion in the second quarter ended April 30, from a year earlier, on a constant currency basis.
However, revenue from the enterprise services business, which the transaction values at about US$8.5 billion after tax, fell 2 per cent at US$4.7 billion year-over-year. The enterprise services business fell 6 per cent year on year in the previous quarter.
HPE, which houses the former Hewlett-Packard's corporate hardware and services division, said the merger of the two businesses is expected to produce cost synergies of about US$1 billion in the first year after close, expected by March next year.
CSC's Mr Lawrie will become chairman, president and CEO of the new company, 50 per cent of which will be owned by HPE shareholders. Ms Whitman will join the board of the new company.
The new company's board will be split evenly between directors nominated by HPE and CSC.