Hewlett Packard Enterprise Co and known as HP, said it would spin off and merge its suffering IT services business with Computer Sciences Corp, permitting the company to emphasis on its growing businesses. For instance, shares of Hewlett Packard Enterprise, formed after Hewlett-Packard Co formally split in November, rose 10.5 percent in extended trading on Tuesday, as for Computer Sciences’ shares jumped 19.5 percent to $42.6.
Hewlett Packard Enterprise has been restructuring its IT consulting and services group under Chief Executive Meg Whitman. The company sold at least 84 percent of its 60.5 percent stake in Indian IT services provider Mphasis Ltd to Blackstone Group for $1.1 billion in April.
The standalone HPE is expected to have $33 billion in annual revenue and concentrate on its bigger enterprise group unit responsible for making servers, routers and switches.
HPE said the merger of the two businesses is expected to produce cost synergies of about $1 billion in the first year after close, expected by March 2017, adding that the transaction values HPE’s enterprise business at about $8.5 billion after tax.
Mike Lawrie, Computer Sciences Chief Executive, will become chairman, president and CEO of the new company, 50 percent of which will be owned by HPE shareholders, noting that Whitman will join the board of the new company.
As for the new company’s board, it shall be split in even between directors nominated by HPE and CSC.
HPE expects $900 million in separation charges regarding the merger, of which $300 million will be recorded in 2016, Chief Financial Officer Tim Stonesifer said on a conference call with analysts.
Moreover, HPE, which also added $3 billion to its share buyback, said total revenue rose 1.3 percent to $12.71 billion in the second quarter.