Hewlett Packard Enterprise group companies today signed a definitive agreement to sell its equity stake in Mphasis Limited, an IT services provider in Bangalore, to private equity funds managed by The Blackstone Group, one of the world's leading investment firms.
Under the terms of the agreement, Blackstone has agreed to purchase at least 84% of HPE's stake in Mphasis for INR 430 per share. Blackstone will purchase the maximum amount of the remaining 16% stake that is permitted by Indian securities laws and subject to the outcome of a mandatory tender offer between signing and closing. At the proposed price, HPE's stake is valued at approximately $825 million.
While HPE's decision to exit its equity position in Mphasis aligns with its current capital allocation priorities, the agreement is not expected to have any adverse impact on HPE's ongoing commercial relationship with the company. In fact, HPE plans to renew the current master services agreement with Mphasis for another five years in connection with this transaction.
"While our financial relationship is changing, the business and commercial relationship with Mphasis remains an important part of our service delivery strategy," said Mike Nefkens, EVP and GM of HPE Enterprise Services. "We remain committed to our strategic partnership with Mphasis and to providing our customers with the high level of service and support they expect from HPE."
The transaction is expected to close in the second half of fiscal 2016, subject to agreed closing conditions.
HPE recognized approximately $650 million of revenue and $110 million of operating profit from Mphasis, on a fully consolidated basis, in fiscal year 2015. HPE recognized approximately $75 million of pre-tax earnings, representing its 60.48% ownership of Mphasis, in fiscal year 2015.
The sale of the equity position in Mphasis is not expected to impact HPE Enterprise Services' ability to achieve its previously provided FY16 operating margin outlook of 6-7% or longer-term 7-9% operating profit margin target.
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