HPE Completes Spin-off Of ES Business; Cuts Q2, FY Outlook

(RTTNews) - Hewlett Packard Enterprise (HPE) said that it has announced separation of its Enterprise Services business or "ES" or "Everett Spinco", and merged it with Computer Sciences Corp. (CSC) to create DXC Technology.

HPE noted that it will retain and continue to invest in Pointnext, its technology services organization that draws on the expertise of more than 25,000 specialists in 80 countries to support customers across Advisory and Transformation Services, Professional Services and Operational Service.

HPE said it will also maintain a strong relationship with DXC, with agreements in place to support current customers and to grow business over time. Meg Whitman will join the board of DXC. In addition, HPE will build valuable new partnerships with other leading IT services companies.

The transaction is expected to deliver approximately $13.5 billion in value to HPE on an after-tax basis. This includes an equity stake in DXC for HPE's shareholders, a cash dividend payment to HPE and DXC's assumption of debt and other liabilities.

With the close of the transaction, HPE stockholders received about 0.086 shares of common stock in the new company for each share of HPE common stock that they held since the applicable record date. As previously announced, approximately 50.1% of the outstanding shares of DXC common stock is now held by pre-merger HPE stockholders and approximately 49.9% of the outstanding shares of DXC common stock has been issued to pre-merger CSC stockholders. The total value of the equity for HPE stockholders is valued at approximately $9.5 billion.

In addition, as a result of the transaction, HPE received a $3 billion special cash payment, with $1.5 billion earmarked for the retirement of existing debt. Also, DXC assumed $600 million of net pension liability and $400 million of existing debt, consistent with the previous descriptions of the transaction structure.

As a result of the successful separation of its Enterprise Services business, HPE is adjusting its financial outlook to reflect the partial-year contribution from ES, since ES will no longer contribute to HPE financials going forward.

Accordingly, HPE adjusted its fiscal 2017 second quarter and full year outlook. As previously disclosed, the ES transaction will impact HPE's second quarter net earnings per share by approximately $0.08, including ES-related stranded costs, and will impact fiscal 2017 diluted net EPS by approximately $0.42, including ES-related stranded costs. Other than the adjustments for the close of the transaction, HPE is maintaining its outlook.

HPE now expects fiscal 2017 second quarter non-GAAP net EPS to be $0.33 to $0.37, from its prior outlook of $0.41 to $0.45, and fiscal 2017 non-GAAP net EPS to be $1.46 to $1.56, from its prior outlook of $1.88 to $1.98.

Fiscal 2017 and second quarter net EPS estimates exclude after-tax costs related primarily to separation costs, restructuring charges and the amortization of intangible assets.

From a GAAP perspective, HPE now expects the fiscal 2017 second quarter GAAP net loss to be $0.03 - $0.07, from its prior outlook of loss per share $0.03- profit of $0.01 per share and fiscal 2017 GAAP earnings per share to be $0.27 to $0.37, from its prior outlook of $0.60 to $0.70.

The company noted that the spinoff of ES will likely cause a one-time non-cash GAAP-only charge in the second quarter from certain changes to HPE's legal structure. The details of these changes are still being finalized.