CSC to Merge with the Enterprise Services Segment of Hewlett Packard Enterprise

CSC’s 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 businesses will create what the companies’ executives called one of the world’s largest pure-play IT services companies. The new company is expected to have annual revenues of $26 billion and more than 5,000 clients in 70 countries.

The deal is anticipated 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% 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.

The announcement comes 6 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.

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.

According to the vendors, 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 merging, both companies will be able to more rapidly accelerate their already-improved financial and operational performance, they noted.

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 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 6 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.

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% of the merged company, HPE shareholders will share in the value of the synergies, as well as future growth in earnings.

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