Hewlett Packard Enterprise announced plans for tax-free spin-off and merger of Enterprise Services business with CSC.
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Transaction will deliver HPE shareholders approximately $8.5 billion in expected after-tax value in stock-for-stock exchange.
Immediately following the transaction, currently targeted to be completed by March 31, 2017, HPE shareholders will own shares of both HPE and approximately 50 percent of the new company. The transaction is intended to be tax-free to HPE and CSC and their respective shareholders for federal income tax purposes.
"The 'spin-merger' of HPE's Enterprise Services unit with CSC is the right next step for HPE and our customers," said Meg Whitman, president and chief executive officer of Hewlett Packard Enterprise.
On a pro forma basis, the new company that combines CSC and HPE's Enterprise Services business is expected to have annual revenues of approximately $26 billion, more than 5,000 customers in 70 countries and employees in every major global region.
The new company's board will be split 50/50 between directors nominated by HPE and CSC.
The transaction 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, which represents approximately 50 percent ownership, a cash dividend of $1.5 billion, and the assumption of $2.5 billion of debt and other liabilities.
The merger of the two businesses is expected to produce first-year cost 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.
One-time costs to separate the Enterprise Services segment from HPE will be offset by lower costs associated with the fiscal 2015 restructuring plan; there are no incremental one-time cash payments beyond those already communicated. The transaction is subject to certain customary closing conditions. ■