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HP Buys Mercury Interactive for $4.5 Billion

Author: Tuan Nguyen
Date: July 26, 2006 8:19 AM
Source: DailyHardware

Doubling its software revnue and putting HP directly in front of BMC, CA and IBM

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Following a string of news on business acquisitions, HP announced this week that it agreed to buy Israeli-based Mercury Interactive Corp. for roughly $4.5 billion in stock. HP said that it will pay $52 per share in Mercury Interactive and the acquisition is aimed about expanding HP's business software portfolio. News of HP's acquisition surfaced Tuesday, which negatively affected HP's share price, knocking down the value roughly 4 percent.

HP's acquisition of Mercury Interactive will help bolster its position in business software and middleware. The current players in this market include BMC Software, Computer Associates, IBM and UniCenter. HP's OpenView systems management software will be one of the applications that will benefit directly from the acquisition. From the press release:

The transaction brings together the strength of HP OpenView systems, network and IT service management software with Mercury's strength in application management, application delivery, IT governance and service-oriented architecture governance. This combination provides customers with the industry's most robust suite for optimizing, automating and aligning IT services with business needs.

Mercury Interactive however, is in a fair amount of hot water with the US government for a stock option scandal. The company was delisted from the Nasdaq market after a probe was launched into the company's questionable stock activities. Analysts said that HP is paying a premium for the troubled company, but HP said it believes its liabilities remain minimal. HP CEO Mark Hurd said "we're comfortable where we are in this process. We believe the issues to be limited and we are comfortable the issues will be resolved."

Absorbing Mercury Interactive will effectively double HP's software business, exceeding $2 billion per year. Analysts predict that HP's software business will have a growth rate between 10 to 15 percent by 2008. Despite the scandal involving Mercury Interactive and some of its former executives, Hurd said that the premium HP is paying "reflects the value of this property."

This week, AMD put up a $5.4 billion bid to buy Canadian graphics chip maker ATI Technologies. The deal is expected to close in Q4'06 pending approval from ATI shareholders and government regulatory review.

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