• CSC (NYSE: CSC) announced today that it would be merging with the Enterprise Services segment of Hewlett Packard Enterprise (NYSE: HPE), creating a massive global IT services company expected to have annual revenues of $26 billion.
• The unit of HPE that is merging with CSC accounts for approximately 100,000 staff, or 50 percent of the company’s headcount. HPE’s remaining operations will center on hardware sales, including software, server systems, networking and storage.
• The combined company will be the third-largest IT services business globally, with more than 5,000 customers across 70 countries and $3 billion in next-generation offerings.
• HPE CEO Meg Whitman will join the new entity’s board of directors, which will consist of directors nominated by HPE and CSC in a 50-50 split. CSC Chairman, President and CEO Mike Lawrie will continue on in those roles at the combined company.

• Funnel Clouds: HP Enterprise and its peers face significant competition from cloud vendors such as Microsoft and Amazon, whose rented computing power model provides a compelling alternative to enterprises establishing their own cloud services and capabilities. By opting for this “spin-merger” as Meg Whitman describes it, HPE is able to concentrate its business to focus on addressing this competition – just as it did earlier this year by selling its majority stake in Indian outsourcing firm Mphasis.
• M&A Looms Large in Both Histories: Both HPE and CSC are the result of large, high-profile divisions. HPE famously formed as the enterprise division of Hewlett-Packard after last year’s split – a surprise announcement by a company once-famous for its blockbuster acquisitions including that of EDS and Compaq Computer. CSC completed its own break-up last November, spinning off its government business into a new company called CSRA that merged with SRA International. It also boasts its own history of significant M&A, including the acquisition of Australia’s UXC Limited last year.
• Size Matters: Incorporating CSC’s $8 billion in revenue with the HPE unit’s $18 billion in revenue, the new company will present a well-positioned challenger in the increasingly competitive IT services space. Its size also allows it to generate first-year synergies of $1 billion post-close, and $1.5 billion by the end of year one, will be key to competing with other major players including IBM and Infosys.
• Great Expectations: HPE announced the transaction today with its second fiscal quarter results, in which the company grew revenue over the prior-year period for the first time in five years. Share prices for both companies are up significantly after hours – HPE rose more than 10 percent, while CSC was up more than 25 percent.

For more information about this transaction, click here to read the press release.