“It’s a win-win situation for everyone”, says Cramer. After the market closed, Meg Whitman has announced yet another spin offs whereas company still reports its historic break up with Hewlett Packard Enterprises (HPQ) last year. HP Enterprises concluded that, it will merge with Computer Science (CSC) as far as company’s enterprise service business is concerned.
During the second quarter’s earnings announcement Whitman told investors, “We believe this industry will consolidate.” He also stated that, “It is better to be on front end of the consolidation play then on the back end of consolidation play.” New deal values enterprises to $8.5 billion and formation of new company will make where HP Enterprise’s shareholders will have 50% stake in new formation. Stock of both the companies has ended in green on Tuesday. Computer Science traded at $46.65 gain of 30.8% whereas HP Enterprises shares were $18.13 gain of 11.6% in pre-market trading.
When negotiations were going on, It was agreed that $1.5 billion cash and assumption about $2.5 billion for pension and other liabilities will be paid to HP Enterprises by new company, once it is formed. Both the companies agreed about HP Enterprises valuation at $4.6 billion during negotiations.
Formation of board will include Whitman but Computer Science CEO and Chairman Mike Lawrie will keep his same position in new company. Lawrie told the correspondent that he and Whitman has the same vision regarding merger. Both have joined their respective company within 6 months of each other’s joining date. It was mostly our losses before merger as each other’s account mostly overlaps by 15%, when checked about top 200 accounts, said Lawrie.
HP Enterprise has made a good move by merging with Computer Sciences, taking business is good when merged with service business, said Jim Cramer, on The Street in a TV interview. Amazon’s (AMZN) business is connected with Computer Sciences whereas Microsoft’s (MSFT) Azure cloud computing business is connected with HP Enterprises. This transaction will make HP wealthy and company can buy many stocks as per market sources.
Computer Sciences has sold its government consulting business previously to build critical mass consulting. Enterprise hardware sector which beats all market expert’s expectation this season, reported in second quarter earnings of Hewlett Packard Enterprises on the sidelines of spinoff news.
HP Enterprises net revenue reported were $12.7 billion, above compared to expert’s expectation of $12.4. Earnings per share reported were 42 cents. Revenue growth increased to $7 billion in this quarter up 7%. The company’s gain is widely termed as EMC’s preoccupied mega merger with Dell. Enterprise group has product range of servers, storage and related operations.
HP Enterprises services business declined to $4.7 billion which is drop of 2%. Software business also dropped to $774 million in sales down 13% where company is keeping business with them at the moment. Financing revenue also dropped to $788 million to 2% drop. Current market price of HP Enterprises is $17.31 experts believe that stock will go up further.