Hewlett Packard Enterprise (HPE) is to sell its majority stake in IT services firm Mphasis Ltd for about US$825 million to Blackstone Group LP, as the US private equity firm expands in India, while the computer maker exits from tangential businesses.
The investment firm is to buy at least 84 percent of HPE’s stake for 430 rupees per share, the US company said in a statement.
The remaining 16 percent is to be bought through a mandatory tender offer.
If that offer is fully subscribed, Blackstone said it could end up paying as much as US$1.1 billion, overall.
HPE chief executive officer Meg Whitman is looking for ways to bring more focus to her company after a historic split in November last year, separating the unit that targets corporations with servers, storage and services from the business of printers and personal computers.
The sale of the about 60 percent stake in Mphasis could provide cash to fuel buybacks, Macquarie Group Ltd analyst Rajesh Ghai said in a note last month.
Its target, Mphasis, is a mid-ranked player in India’s US$150 billion software services industry that focuses its business on banks and other financial institutions, and gets about one-quarter of its revenue from HPE. Its shares had slipped 2 percent to 459.35 rupees as of 11:50am 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,” Gartner research director Arup Roy said.
“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,” he added.
Mphasis posted sales of about 58 billion rupees (US$877 million) in the year ended March last year.
It was ranked eighth in an annual survey conducted by the domestic industry association last year, 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.”
The sale will not have any impact on HPE’s agreement with Mphasis, which is set to be renewed for another five years as part of the deal, it said.
Blackstone has invested US$2 billion in India across private equity and real estate since last year, including a US$384 million acquisition of Serco Group PLC’s processing business. It is buying 84 percent of HPE’s stake via a private placement.
Under Indian takeover regulations, the firm must also make an open offer for another 26 percent of Mphasis’ voting stock, through which HPE plans to unload its remaining shares, it said in a statement.
If other shareholders were to subscribe to the entire 26 percent stake Blackstone is offering to buy, the investment firm could wind up paying as much as 70.71 billion rupees for Mphasis shares in total, the investor said.
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