HP Enterprise to merge IT services unit with Computer Sciences

Reuters: Hewlett Packard Enterprise Co (HPE.N) said it would spin off and merge its struggling IT services business with Computer Sciences Corp (CSC.N), allowing the company to focus on its cloud services business and other fast-growing units.

Shares of Hewlett Packard Enterprise, formed after Hewlett-Packard Co formally split in November, rose 10.5% after the announcement. Falls Church, Virginia-based Computer Sciences’ shares rose by 19.5%. Under Chief Executive Meg Whitman, Hewlett Packard Enterprise has been restructuring its IT consulting and services group.

The company sold at least 84% of its 60.5% stake in Indian IT services provider Mphasis Ltd (MBFL.NS) to Blackstone Group (BX.N) for $1.1 billion in April.

HPE is expected to have $33 billion in annual revenue after the spinoff 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% to $7.01 billion in the second quarter ended 30 April, from a year earlier, on a constant currency basis.

However, revenue from the enterprise services business, which the transaction values at about $8.5 billion after tax, fell 2% at $4.7 billion year-over-year.

The enterprise services business fell 6% year-over-year in the previous quarter.

HPE, which houses the former Hewlett-Packard Co’s corporate hardware and services division, 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.

Computer Sciences Chief Executive Mike Lawrie will become chairman, president and CEO of the new company, 50% of which will be owned by HPE shareholders. 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.