Hewlett-Packard, the world’s second biggest IT company by revenues, on Tuesday revealed plans to buy Mercury Interactive, a business software company that was one of the first companies caught up in the unfolding scandal over stock options backdating.
The deal, worth $4.5bn in cash, is HP’s biggest since its ill-starred $21bn acquisition of Compaq, the personal computer maker, in 2001. It values Mercury at $52 a share – a 33 per cent premium over the company’s market price.
Mercury, which provides business software testing and consulting services, became a takeover target in November after Amnon Landan, its former chief executive, resigned amid revelations that he and two other executives had inflated the value of stock options by manipulating their purchase dates. Mr Landan was also accused of misreporting grant dates of personal stock options and other financial improprieties.
Mercury’s shares have traded on the over the counter market since January, when they were de-listed from the Nasdaq Stock Market for non-compliance with filing requirements. Last month, the Securities and Exchange Commission said it was considering civil charges against some of the company’s directors.
More than 80 companies are under investigation in the widening scandal over stock options backdating. At issue is whether senior executives intentionally misled shareholders and regulators by altering the grant dates of stock options to coincide with low points in the value of their companies’ shares.
The US Department of Justice last week handed down the first criminal charges related to the controversy, charging two former executives of Brocade Communications Systems, a networking company, with securities fraud.
Mr Hurd said the backdating issue at Mercury had “certainly” affected HP’s offer price, but he added that HP had performed appropriate due diligence and was “comfortable that [Mercury’s] issues will be resolved.”
HP has witnessed dramatic turnaround since Mr Hurd assumed the role of chief executive last year. Shares in the company have risen more than 50 per cent under Mr Hurd, who was seen as bringing renewed discipline to HP after shareholder frustration at the company’s volatile performance in the years following the Compaq acquisition led to the ouster of Carly Fiorina as chief executive last year.
Although the Mercury deal marks his first multi-billion dollar acquisition during his tenure as CEO, Mr Hurd told the FT that it did not represent a change in strategy.
“I don’t think you should expect us to be doing many [acquisitions of this size],” he said. “This was an opportunity that doesn’t come along very often. I don’t think you should see us as being highly acquisitive.”
HP’s shares fell nearly 4 per cent in after-hourstrading after it said the acquisition would reduce earnings by 4 cents a share in 2007. HP said the acquisition would add 2 cents a share to the earnings in 2008.