HPE Sells Controlling Stake In Mphasis To Blackstone For $825M

Hewlett Packard Enterprise has unloaded its majority stake in Bangalore, India-based solution provider Mphasis to private equity giant Blackstone Group in a deal valued at $825 million.

The transaction, announced Monday, is expected to close in the second half of fiscal 2016, subject to closing conditions, according to a statement from HPE.

HPE owns about 60.5 percent of Mphasis, which, as of the end of last year, employed about 23,500.

[Related: Report: Blackstone Looking to Buy Mphasis from HPE for More Than $1 Billion]

In mid-March, The Economic Times reported that New York-based Blackstone was the favorite to acquire the controlling stake after it had submitted a binding offer worth more than that of top competitor Apollo Global Management of New York.

Mphasis’ stock, which trades on the National Stock Exchange of India, gained 3 percent Monday over Friday's close. It opened the day up 31 cents, to $7.19 a share, but fell back to close at $7.09. It fell further Tuesday, closing at $6.90.

Under the terms of the deal, Blackstone has agreed to purchase at least 84 percent of HPE's stake in Mphasis for $6.51 per share, HPE said in its statement. Blackstone will then purchase the remaining 16 percent stake that's permitted under Indian law and subject to the outcome of a mandatory tender offer between the signing and closing of the deal, HPE said.

In an interview with CRN on Tuesday, Dinesh Venugopal, an Mphasis president based in San Jose, Calif., and who sits on the company’s executive council, said initial feedback about the Blackstone deal from Mphasis customers has been positive. He also said it will help accelerate Mphasis' push toward helping customers use digital technology for better customer experience management.

Blackstone, the world's largest private equity fund, owns Denver-based Optiv Security -- No. 26 on CRN’s 2015 Solution Provider 500 list -- the world’s largest pure-play security firm in the channel. Optiv was born out of a merger last year of Accuvant and FishNet Security. Blackstone's portfolio includes about 90 companies. Venugopal said that being under the Blackstone umbrella will open up opportunities for business within that portfolio.

While HPE's decision to sell its stake in Mphasis aligns with its current capital allocation priorities, HPE said in its statement that it will continue to do business with Mphasis, and plans to renew a services contract with the Indian company for five years as part of the deal with Blackstone. Venugopal said Mphasis derives about 25 percent of its revenue from HPE.

"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, executive vice president and general manager of HPE Enterprise Services.

Blackstone said it has no plans to replace the current management at Mphasis, led by CEO Ganesh Ayyar, The Economic Times reported Monday.

In January, the Times of India reported that HPE was seeking a buyer for its Mphasis stake. The Times also reported that Hewlett-Packard -- before it split into HPE and HP Inc. in November 2015 -- nearly began work two years ago to sell Mphasis, but ultimately held off for internal reasons.

Mphasis had shifted its business away from the Palo Alto, Calif.-based vendor over the past two years, with Hewlett-Packard's share of Mphasis' revenue falling from 70 percent in 2013 to just 30 percent as of July 2015, according to the company.

HPE said it recognized about $650 million of revenue and $110 million of operating profit from Mphasis in fiscal year 2015, as well as about $75 million in pretax earnings.

HPE said the deal is not expected to impact its Enterprise Services division's ability to achieve its previously provided operating margin outlook of 6 percent to 7 percent for fiscal year 2016, or its longer-term operating profit margin target of 7 percent to 9 percent.