Please ensure Javascript is enabled for purposes of website accessibility

Instant Analysis: Hewlett Packard Enterprise Sells Indian Unit to Blackstone for $825 Million

By Eric Volkman - Apr 7, 2016 at 4:34PM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

The deal will cost the buyer up to $1.1 billion.

IMAGE SOURCE: MPHASIS. 

What happened?
Hewlett-Packard Enterprise (HPE 4.64%) is getting rid of a legacy asset. The company announced it has reached an agreement to sell its just over 60% stake in India-based IT outsourcing specialist Mphasis to affiliates of financial services giant Blackstone (BX).

Depending on the outcome of a mandatory tender offer to the company's public shareholders -- required by local securities law -- Blackstone could end up paying as much as $1.1 billion for control of Mphasis. Alone, the Hewlett-Packard Enterprise stake is worth around $825 million.

In its press release, Hewlett-Packard Enterprise said that it took in roughly $650 million in revenue and $110 million in operating profit from its Mphasis stake in the former's fiscal 2015. The American company said it would continue to work with Mphasis after the divestment, renewing an existing master services agreement for a term of five years.

The sale is expected to close in the second half of Hewlett-Packard Enterprise's current fiscal year, which ends Oct. 31.

Does it matter?
Mphasis is not a huge part of Hewlett-Packard Enterprise's business; that $650 million is a drop in the bucket of the company's annual revenue, which was nearly $52 billion last year. So we shouldn't expect much of an impact to the company's investing thesis.

Still, the sale should probably be viewed positively by shareholders, as it's another step in the company's fat trimming of its big enterprise service group. Much of this is the legacy of predecessor Hewlett-Packard's huge $13.9 billion acquisition of IT consultant Electronic Data Systems in 2008. A majority stake in Mphasis had previously been acquired by EDS.

The acquisition shouldn't change the relationship between Mphasis and Hewlett-Packard Enterprise, which happens to be the Indian company's top client. Blackstone shareholders will be cheered by the fact that the agreement between the two will remain in force for several years.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

The Blackstone Group L.P. Stock Quote
The Blackstone Group L.P.
BX
Hewlett Packard Enterprise Company Stock Quote
Hewlett Packard Enterprise Company
HPE
$15.79 (4.64%) $0.70

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning service.

Stock Advisor Returns
344%
 
S&P 500 Returns
120%

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 05/27/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.