IMAGE SOURCE: MPHASIS.
Continue Reading Below
Hewlett-Packard Enterprise 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 .
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.
Continue Reading Below
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.
The article Instant Analysis: Hewlett Packard Enterprise Sells Indian Unit to Blackstone for $825 Million originally appeared on Fool.com.
Eric Volkman has no position in any stocks mentioned, and neither does The Motley Fool. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.
Copyright 1995 - 2016 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.