San Francisco / Bengaluru: Hewlett Packard Enterprise said it will sell its majority stake in Mphasis Ltd for about $825 million (Dh3.03 billion) to Blackstone Group LP.
The private equity firm will acquire at least 84 per cent of HPE’s stake for 430 rupees (Dh23.80) per share, the US company said in a statement on Sunday. The remaining 16 per cent stake will be bought via a mandatory tender offer, HPE said.
Chief Executive Officer Meg Whitman is looking for new ways to help bring more focus to her company after a historic split of HP in November, separating the company that targets corporations with servers, storage and services from the business that provides printers and personal computers. The sale of the roughly 60 per cent stake in Mphasis could help provide fresh cash to fuel more buybacks, according to a note by Rajesh Ghai, an analyst at Macquarie Group Ltd. last month.
Its target, Mphasis, is a mid-ranked player in India’s $150 billion software services industry that focuses its business on banks and other financial institutions, and gets about a quarter of its revenue from HP. Its shares had slipped 2 per cent to 459.35 rupees as of 11:50 am in Mumbai.
“Blackstone comes with deep pockets. This deal will allow them to bloom and grow their own identity and chart a new growth plan,” said Arup Roy, a research director at Gartner. “It will be a struggle, however. They may not be able to compete with tier-one players. They will have to settle in the middle rungs of India’s IT services hierarchy.”
Mphasis posted sales of almost 58 billion rupees in the year ended March 2015. It was ranked eighth in an annual survey conducted by the domestic industry association in 2015, behind leaders Tata Consultancy Services Ltd. and Infosys Ltd.
HPE said its decision to sell its Mphasis stake “aligns with its current capital allocation priorities.” Still, the deal won’t have any impact on HPE’s commercial agreement with Mphasis, which was renewed for another five years as part of the deal, it said.
HP has been a key customer for Mphasis, providing 24 per cent of sales in the quarter ended December 31. While significant, that’s down from 35 per cent in the year-ago period.
The transaction, which is expected to close in the second half of fiscal 2016, won’t impact HPE’s targets for an operating margin of 6 per cent to 7 per cent for the year, the company said. In 2015, HPE recognised $75 million in pretax profit from its stake in Mphasis, it said.
Blackstone has invested $2 billion in India across private equity and real estate since 2015, including a $384 million acquisition of Serco Group Plc’s processing business. It’s buying 84 per cent of HPE’s stake via a private placement. Under Indian takeover regulations, the firm must also make an open offer for another 26 per cent of Mphasis’ voting stock, through which HP plans to unload its remaining shares, it said in a statement.
