Hewlett Packard Enterprise Co (HPE.N) said on Tuesday it planned to spin off and merge its enterprise services business with Computer Sciences Corp (CSC.N), as HPE shifts its focus to the cloud services business.
Shares of Hewlett Packard Enterprise (HPE) were up 10.4 percent at $17.60 in extended trading on Tuesday. Computer Sciences' shares jumped 19.5 percent to $42.6.
HPE has been restructuring its IT consulting and services group and has already sold at least 84 percent of its 60.5 percent stake in Indian IT services provider Mphasis Ltd to Blackstone Group (BX.N) for $1.1 billion in April.
HPE, which houses the former Hewlett-Packard Co's corporate hardware and services division, said the merger of the two businesses is expected to produce cost synergies of about $1 billion in the first year after close.
The transaction values HPE's enterprise business at about $8.5 billion after tax.
Mike Lawrie, chief executive of Computer Sciences, will become chairman, president and CEO of the new company.
HPE CEO Meg Whitman will join the board of the new company, 50 percent of which will be owned by HPE shareholders.
The deal is expected to be completed by March 2017, Whitman said on a conference call with analysts.
The new company's board will be split evenly between directors nominated by HPE and CSC.
HPE also authorized an additional $3 billion for share repurchases.
HPE said its net earnings rose about 5 percent to $320 million, or 18 cents per share, in the second quarter ended April 30, from a year earlier.
(Reporting by Alan John Koshy in Bengaluru; Editing by Maju Samuel)
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Updated Date: May 25, 2016 02:45 AM