The SEC has not yet finished its investigation into Mercurys stock options backdating. Isnt HP concerned that this acquisition will cost it more than the agreed-upon price?
We feel quite comfortable with the due diligence weve done. Much of their work is complete. Now the last steps are around final verification [and] to deliver the final audited statements. The closing of the deal is contingent on those being published. This is part of why weve done the deal now. They are far along enough now that we can be comfortable and get ahead of others that wanted to buy Mercury.
How did HP arrive at $4.5 billion? With Mercurys SEC and financial problems, couldnt it have been had for a better price?
We feel that the $52-a-share price is a good deal for HP. When we look at the economic impact for HP and look at the short- and long-term position this gives us, were comfortable at that price. We also wanted to get to a closure on the deal and we didnt want lots of people getting to the table and have it turn into a long, public bidding war. The portfolio impact is awesome.
This news came together rather quickly, even though it had been rumored for a while. Were there other companies in there bidding for Mercury that caused HP to move so quickly and that increased the price?
The timing was driven by us getting to a comfort point in the due diligence. That really drove the timing for us. We believe this is a good deal for HP financially. What this creates is a software business thatll be more than $2 billion in revenue. It creates a business in fiscal 08 where we can grow revenue 10 to 15 percent. And also in 08 it can deliver 20 percent operating profits for the combined HP and new assets. That is an incredible business outcome—to almost double the size of our software business and create that kind of financial performance. This is a healthy, strong business asset…
What impact will this have on Mercury customers?
Im already getting one e-mail every hour from big [Mercury] customers saying this is the best thing HP could have possibly done. We think this will be very positive for them. They can be confident in HP as a corporation, and most of the customers like the HP and Mercury [product] portfolios. Many of them have both, because they are such separate sets of functionality. Theyll like even more dealing with just one of us as a corporation and [getting] the whole portfolio from us. For application management and upfront test and development you think of Mercury. Think of network/system/desktop management and you think of HP. Now for integrated management you think about HP. For most customers this is great, to consolidate key functionality with one company.
The loyalty of those customers kept Mercury going during the worst of its financial scandal. What will HP do to encourage that continued loyalty?
It is actually is easier for the customers—they get no questions from the management team on all the inquiries going on. Well keep as many Mercury people as we can. The Mercury employee base is just awesome. For customers its the best of all worlds. We hope to have as much stability as we can. We think the Mercury installed base of customers will be very happy with this.
The cultures of Mercury and HP are as different as night and day. How will you ensure that the integration process goes smoothly—organization and technologywise—and what will you do to keep key Mercury personnel from jumping ship?
This is the No. 1 focus for us on the integration process—not technology or product issues, but keeping the performance culture and focus of the Mercury team. In the [Mercury] sales organization we like the aggressiveness of the team. Well spend lot of effort on that. Well focus on culture and integration of people and keeping great Mercury employees. The second focus will be around keeping the momentum of the sales team. Those will be the two things well focus most on. We will focus on maintaining top performers in Mercury. We want them to have big impact on the attitude of the sales organization.
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