CSC to merge with IT services spin off of Hewlett Packard Enterprise

Published May 25, 2016 by Jessica Sabbath

CSC plans to merge with Hewlett Packard Enterprise(HPE)’s Enterprise Services segment, creating a $26 billion IT services company.

The merger is expected to be complete by the end of March 2017, subject to shareholder and regulatory approvals. The company will serve more than 5,000 clients in 70 countries.

Following the transaction, CSC and HPE shareholders will own 50 percent of the new company’s shares.

The company expects its headquarters to remain in Tysons, according to a CSC spokesman. It has not yet been determined whether the merger will affect employment levels at the two companies.

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.

The announcement also comes six months after Hewlett Packard split itself into two companies: HPE and HP Inc. HPE, headquartered in Palo Alto, Calif., focuses on selling hardware, while HP Inc. sells printers and PCs to businesses.

Under the plan announced this week, HPE would spin off its enterprise services segment, which would then merge with CSC.

Mike Lawrie, chairman, president and CEO of CSC, will hold the same titles at the merged company. Meg Whitman, HPE’s president and CEO, will join the new company’s board of directors, which will be split between nominees of CSC and HPE.

CSC’s CFO, Paul Saleh, will continue to hold the same role at the company. Mike Nefkens, the current executive vice president and general manager of HPE Enterprise Services, will report to Lawrie and be part of the executive team. The name of the new 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 in a statement. “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.”

Company officials said in a statement that the merger will allow the companies to serve clients more efficiently and effectively.

In the past six months, CSC has made several acquisitions, including:
•   UXC, making CSC one of the largest IT services companies in the Australia-New Zealand region;
•   Xchanging Plc, a UK-based provider of insurance software and business process services; and
•   Fixnetix, based in London, and Fruition Partners, based in Chicago, to bolster its banking and capital markets and service management.

CSC also announced earlier this week its intent to acquire Aspediens, a European provider of technology-enabled solutions for the service-management sector.

“As a pure play, the combined company will be built to lead digital transformations using next-generation technology solutions from both companies,” Lawrie said. “It will be able to operate independent of any single hardware provider, while partnering with the world’s leading technology providers, including HPE.”

The transaction is expected to deliver $8.5 billion to HPE’s shareholders, including a $4.5 billion equity stake in the merged company, a cash dividend of $1.5 billion and the assumption of $2.5 billion in debt and other liabilities.

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.

RBC Capital Markets is serving as financial adviser to CSC, and Allen & Overy LLP is serving as legal adviser.