Partners: HPE Decision To Merge Former Services Business With CSC Is A Winner For The Channel

Originally posted in CRN.com By Steven Burke on May 24, 2016

Hewlett Packard Enterprise’s decision to spin off and merge its $20 billion enterprise services business with systems integration giant Computer Sciences Corp. opens the door for a sharper focus on enterprise sales and services growth through the channel, said HPE partners.

[highlight type=”one”]”This business was a drain to HPE,” said Bob Venero, CEO of Holbrook, N.Y.-based solution provider Future Tech, No. 232 on the CRN 2015 Solution Provider 500. “When you have an arm that is bleeding, you either have to cauterize it or cut it off. At the end of the day, this is going to allow them to focus on the core components of the business, which will be driven through the channel.”[/highlight]

Partners said the merger will also allow them to showcase their own services offerings without fear of competing with HPE directly. The deal should drive more channel opportunity, said Sam Haffar, CEO of Houston-based Computex Technology Solutions, No. 130 on the CRN 2015 Solution Provider 500.

“I think we can move upstream with our services and get better positioned in accounts, since we no longer will be competing with HPE services,” Haffar said. “Computex has very high-end services and solutions and now that we won’t be in direct competition with HPE. I see us collaborating more closely with the HPE direct sales force.”

The deal is expected to deliver about $8.5 billion to HPE’s shareholders on an after-tax basis. It 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.

In the wake of the news, HPE shares were up 10 percent, to $17.94, while CSC shares soared 20 percent, to $42.

HPE partners said the deal brings to a close a tough road for HP’s enterprise services push, which began when then-HP CEO Mark Hurd acquired systems integrator EDS for $13.9 billion in 2008. Eight years later, HPE is still in the process of making cuts to bring the business into the cloud services era. Last May, HPE said it planned to off as many as 25,000 to 30,000 enterprise services employees- taking $2.7 billion in costs out of what had become the HPE Enterprise Services business.

“This was one of those large acquisitions that didn’t mean a lot from an income and profitability standpoint,” said Venero. “It’s like Autonomy. HPE has not made a lot of good acquisitions. This was a major drag on business.”

Whitman said in a statement that the merger is the best move for both HPE and HPE Enterprise Services customers.

“The ‘spin-merger’ of HPE Enterprise Services from CSC is the right next step for HPE and our customers,” Whitman said in a statement. “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.”

The merger is expected to deliver $1 billion in first-year synergies, with possible further opportunities for synergies in the years to come, the companies said.

After the merger, which is expected to close in March 2017, the combined company will have $26 billion in revenue with 5,000 customers across 70 countries. It will be led by CSC CEO Mike Lawrie, with HPE President and CEO Meg Whitman joining its board of directors. Mike Nefkens, HPE Enterprise Services executive vice president and general manager will join CSC, reporting to Lawrie.