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The surprise move by Hewlett Packard Enterprise ( HPE ) to spin off and merge its enterprise-services division with Computer Sciences Corp. ( CSC ) could put pressure on IBM ( IBM ) to respond, analysts say. Shares in HPE jumped late Tuesday after the company announced the tax-free spinoff of its services business. HPE also reported better-than-expected fiscal Q2 earnings, but EPS was still down 2% year over year. “We believe the HPE Services plus CSC transaction will cause Xerox ( XRX ) services to be looked at as an acquisition target, as well as put pressure on IBM to consider making acquisitions in its services business,” Citigroup analyst Jim Suva said in a report. The combination of HPE’s enterprise services business and CSC will have about $26 billion in annual sales. The deal is expected to close in March 2017. Jason Kupferberg, analyst at Jefferies, says the HPE-CSC deal has merit. “We believe the combined firm will trail only IBM Global Services and Accenture ( ACN ) in terms of global IT Services revenue,” Kupferberg said in a report. “While neither CSC or HPE enterprise services are industry growth leaders and have been in turnaround mode, we see strategic rationale for the merger, given the complementary vertical exposures (CSC strong in insurance, health care and banking, with HPE enterprise services known for pharmaceuticals, transportation, and telecom.)” Hewlett-Packard split into two publicly traded companies last November. Shareholders of HP Enterprise and CSC will each own half of the new company’s shares. Global Equities Research analyst Trip Chowdhry said the HPE services-CSC merger is the combination of two struggling companies and could result in 65,000 layoffs. “Two bad assets does not make one good asset,” he said. Scalper1 News
Scalper1 News