Market Insider

HPE CEO Meg Whitman: Computer Sciences deal 'unlocks value'

Whitman: CSC deal creates more efficient unit

Both Hewlett Packard Enterprise and Computer Sciences will benefit greatly from their new deal, HPE CEO Meg Whitman said Wednesday.

"This transaction unlocks value for both companies," Whitman told CNBC's "Squawk on the Street." "It creates two new companies, so the enterprise services-CSC company will be a $26 billion pure-play industry leader and that's important because I think that part of the business is going to consolidate."

HPE announced Tuesday it would spinoff its enterprise services unit, which will merge with Computer Sciences.

The merger, which values HPE's services business at about $8.5 billion, is expected to be completed by the end of March 2017. HPE shareholders will own shares of both HPE and the combined company.

Meg Whitman
Hewlett Packard Enterprise announces spinoff as earnings meet Street

The shares of both companies skyrocketed Wednesday, with HPE gaining 6.8 percent and CSC surging 42 percent.

At least five analyst firms raised their price targets on HPE, including Atlantic Equities.

"While the initial market reaction to the deal was positive, likely due to the potential cash returns following the aforementioned upfront considerations to be paid by CSC, we feel the strategic rationale of the transaction is mixed with the currently available information," Atlantic Equities, which raised its price target to $17 from $16, said in a Wednesday note to clients.

HPE also posted better-than-expected fiscal second-quarter adjusted earnings of 42 cents a share on revenue of $12.71 billion. Analysts expected HPE to post earnings of 42 cents per share on $12.34 billion in revenue, according to a Thomson Reuters consensus estimate.

Hewlett-Packard Enterprise Chief Executive Officer (CEO) Meg Whitman.
Whitman: HP Enterprise off to good start

"I do think it's important to underscore the backdrop of an excellent quarter. It's the best quarter of earnings that we've had since I joined the company, so we are really proud of the turnaround," Whitman said.

HPE shares are up more than 14 percent in 2016.

HPE year to date

Source: FactSet

— CNBC's Jacob Pramuk contributed to this report.