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Computer Sciences Corporation (CSC) is Surging on HP Merger Agreement

Computer Sciences Corporation (CSC)

Shares of Computer Sciences Corporation are trading up today, as investors seem very excited about the company’s merger agreement with Hewlett Packard Enterprise . On Tuesday, Hewlett Packard Enterprise announced that it will combine its enterprise services business with Computer Sciences Corporation.

 Computer Sciences Corporation (CSC)

What Computer Sciences Corporation Shareholders Should Expect?

The deal would deliver about $8.5 billion in value 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 about 50% ownership, a cash dividend of $1.5 billion, and the assumption of $2.5 billion of debt and other liabilities.

Hewlett Packard Enterprise said in a statement that the spin-off will allow it to focus on building end-to-end infrastructure solutions to power the enterprise cloud and mobility revolutions.

The combination of Computer Sciences Corporation and enterprise services unit will form a new company that would have annual revenues of about $26 billion. The new company is expected to serve more than 5,000 customers in 70 countries.

Commenting on the deal, Computer Sciences Chairman and CEO Mike Lawrie said: “As a more powerful, versatile and independent global technology services business, this new company will be well positioned to help clients succeed on their digital transformation journeys. Together, CSC and HPE’s Enterprise Services will have the scale, foundation and next-generation technologies to innovate, compete and grow in a rapidly changing marketplace.”

Merger Saves $1 billion in Costs

Mike Lawrie will lead the new company. He will become chairman, president and CEO. The new company’s board will be split 50/50 between directors nominated by HPE and Computer Sciences.

Paul Saleh, CFO of Computer Sciences will continue in that role in the new company after the transaction closes. Mike Nefkens, executive vice president and general manager of HPE’s Enterprise Services business, will also join the new company’s executive team.

The deal is expected to be completed by March 31, 2017.

The merger would produce first-year cost savings of about $1 billion post-close, with a run rate of $1.5 billion by the end of year one, according to HPE.

The company also added that, as a result of this merger, both the new company and HPE will be “well-capitalized and have capital structures set to take advantage of their distinct growth opportunities and cash flow profiles.”

Shares of Computer Sciences Corporation rose 34.11% in the morning trading session. The stock has gained 44.44% year-to-date. Shares of Hewlett Packard Enterprise jumped 9.26% in the morning session.

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