As first reported by "Globes" at the beginning of May, US computer giant Hewlett-Packard Co. (NYSE:HPQ) has announced that it will buy Israeli company Mercury Interactive Corp. (Pink Sheets:MERQ). HP said it would pay $52 per share for Mercury, or $4.5 billion altogether. The price is 33% higher than Mercury's closing price on Wall Street. The deal is expected to close in the fourth quarter.
Chief Scientist: Mercury acquisition proves Israel’s software leadership
HP’s acquisition of Mercury is the largest cash transaction in Israeli high-tech history. Only Lucent Technlogy’s (NYSE:LU) acquisition of Chromatis Networks in 2000 for $4.7 billion was larger, but it was share-swap deal. The acquisition of Mercury is even larger than Warren Buffett’s take-over of 80% of Wertheimer family owned Iscar Ltd. through Berkshire Hathaway Inc. (NYSE:BRK-A; BRK-B) for $4 billion.
Business technology optimization company Mercury is traded at a market cap of $3.1 billion on the Pink Sheets, the list to which it was relegated from Nasdaq after it failed to file its financial statements for the second and third quarters of 2005 on time, because of an investigation into employee stock option allocations at the company.
Mercury has been under investigation for backdating stock option grants to executives to boost the latter’s profits. The company has not published its financial reports and therefore been relegated to the Pink Sheets. In early July, the company released partial financial results, and said the financial damage from the improper recording of stock options totaled $500 million.
Mercury is scheduled to publish its financial report for 2005 during the coming months. During a conference call in July, Mercury president, CEO and COO Anthony Zingale said the company believed that it now met the criteria for relisting on Nasdaq’s main board. The company posted $836-850 million in sales in 2005, 22-24% more than in 2004.
At the same time Mercury published its partial results, it said that the US Securities and Exchange Commission (SEC) was considering initiating civil proceedings against company executives, including chairman Dr. Giora Yaron, directors Yair Shamir and Yigal Cochavi. Mercury chairman, president and CEO Amnon Landan and other executives resigned in November 2005 in the wake of the scandal.
Mercury’s share closely reflects events at the company. The share price fell to $25.70 in late 2005 in the wake of the options scandal, but subsequently rose 36% to stabilize at $38-39.
The acquisition of Mercury is expected to boost HP’s software business to over $2 billion a year. As soon as the deal is closed, HP is expected to operate Mercury as an independent unit within its software division, and the companies’ combined sales power will begin with the joint sale of products.
Hewlett-Packard president and CEO Mark Hurd said, “Today, we are combining two market-leading businesses to create the most powerful management software portfolio in the industry. Together, they will help customers cut their IT costs, speed the delivery of new services and drive profitable growth at HP. We expect this important acquisition to deliver significant value for our shareholders.”
Zingale said, “Together, HP and Mercury instantly become the industry’s premier provider of business technology optimization (BTO) software. A deal of this magnitude creates significant opportunities for our customers, our shareholders, our people and our partners.”
Although Mercury is not considered a classic Israeli company, it can be counted as HP’s third acquisition in Israel. Until 1998, it operated in Israel through a local distributor, CMS, which it acquired and converted into Hewlett Packard (Israel) Ltd. HP initiated R&D activity in Israel even earlier, establishing HP Labs at teh Technion - Israel Institute of Technology in Haifa.
In 2001, HP acquired Benny Landa’s digital printing press maker Indigo for $720 million, which gave HP 1,300 employees in Israel. Later, HP invested $200 million in setting up a factory to produce ink heads and printers in Kiryat Gat. Last year, HP acquired wide-format digital printer maker Scitex Vision for $240 million in cash. The acquisition of Mercury will add its 665 Israeli employees to HP's workforce in Israel, boosting it to 2,200.
Published by Globes [online], Israel business news - www.globes.co.il - on July 26, 2006
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