Strategic Combination of Two Complementary Businesses Will Create Greater Value for Clients, Partners and Shareholders, Growth Opportunities for Employees
CSC (NYSE: CSC) today announced that its Board of Directors has unanimously approved a plan to merge the company with the Enterprise Services segment of Hewlett Packard Enterprise (HPE).
The strategic combination of the two complementary businesses will create one of the world’s largest pure-play IT services companies, uniquely positioned to lead clients on their digital transformations. 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. Following the transaction, CSC and HPE shareholders each will own approximately 50 percent of the new company’s shares. The transaction is intended to be tax-free to CSC and HPE and their respective shareholders for federal income tax purposes.
Today’s announcement comes six months after CSC separated into two publicly traded companies: CSC, to serve commercial and government clients globally, and CSRA, which serves public sector clients in the United States. Both CSC and HPE’s Enterprise Services segments have been on upward trajectories, showing significant improvements in financial performance and client satisfaction scores.
Following completion of the transaction, Mike Lawrie, who currently serves as chairman, president and CEO of CSC, will become chairman, president and CEO of the new company. Meg Whitman, HPE’s president and CEO, will join the new company’s Board of Directors, which will be split equally between nominees of CSC and HPE. 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. Other executives and directors, as well as the name of the company, will be announced at a later date.
“Our proposed merger with HPE Enterprise Services is a logical next step in CSC’s transformation,” Lawrie said. “As a more powerful and versatile global technology services business, the new company will be well positioned to innovate, compete and serve clients in a rapidly changing marketplace. We are excited by the great potential this merger brings to our people, clients, partners and investors, and by the opportunity to strengthen our relationship and collaboration with HPE.”
“The ‘spin-merger’ of HPE Enterprise Services with CSC is the right next step for HPE and our customers,” said Whitman. “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.”
Creating a Global IT Services Leader
The combination of CSC and HPE’s Enterprise Services segment will create a new company with substantial scale to serve clients more efficiently and effectively worldwide. By combining, both companies can more rapidly accelerate their already-improved financial and operational performance.
For clients, the new company will offer enhanced global access to world-class, next-generation offerings – combined with deep industry experience in key industry sectors.
The merging of these businesses will offer:
CSC’s Go-Forward Strategy Post-Separation
Today’s announcement represents a major step in the post-separation strategy outlined by CSC’s leadership last fall. At that time, the company positioned itself as a next-generation IT services company built specifically to respond to a changing market – one that is driving clients to move rapidly toward digital transformation.
In just the six months since separation, CSC has taken decisive steps to equip the company to take clients on this digital journey, positioning itself as a true next-generation leader in the markets, industries and practice areas it serves. CSC has:
“Clients are feeling the pressure to digitally transform their enterprises to meet new business demands and customer expectations,” Lawrie noted. “They need a partner with the innovation, scale, leadership and dependability to answer the challenge.
“As a pure play, the combined company will be built to lead digital transformations using next-generation technology solutions from both companies,” Lawrie continued. “It will be able to operate independent of any single hardware provider, while partnering with the world’s leading technology providers, including HPE.”
About the Transaction
The transaction between CSC and HPE is expected to deliver approximately $8.5 billion to HPE’s shareholders on an after-tax basis. This includes an equity stake in the newly combined company valued at more than $4.5 billion, a cash dividend of $1.5 billion, and the assumption of $2.5 billion of debt and other liabilities related to the HPE Enterprise Services segment.
The merger of the two businesses is expected to produce first-year synergies of approximately $1 billion post-close, with a run rate of $1.5 billion by the end of year one. There is an opportunity for additional synergies in subsequent years. As owners of approximately 50 percent of the merged company, HPE shareholders will share in the value of the synergies, as well as future growth in earnings.
RBC Capital Markets is serving as financial advisor to CSC, and Allen & Overy LLP is serving as legal advisor.