HP (HPQ) To Sell Certain Assets To Open Text For $315 Million

HP Inc. (NYSE:HPQ) recently entered into a definitive agreement to sell its Customer Communications Management (CCM) assets to Open Text Corporation (NASDAQ:OTEX) , a Canada-based business software maker. The transaction, which is anticipated to close in the first quarter of 2017, is valued at $315 million.

Open Text expects the acquired assets to generate annualized revenues of $110–$125 million and be immediately accretive to earnings.

Shares of Open Text gained over 3% yesterday on the news, while HP saw its shares close the trading session with a marginal decline.

In Apr 2016, Open Text bought a set of content management software tools from HP for approximately $170 million. The transaction is projected to generate annualized revenues of $85–$95 million.

We believe that HP’s latest asset divestment is part of the company’s restructuring plan. The move will help the company to realign its businesses, and focus better on the PC and printing businesses.

Notably, last November, Hewlett-Packard Company was split into two standalone entities – HP Inc and Hewlett-Packard Enterprise Company (NYSE:HPE) . Post the split, the parent company’s hardware business, consisting mainly of the PC and printer businesses, came under HP Inc, while Hewlett-Packard Enterprise began offering commercial tech products.

The persistent decline in PC shipments is a material headwind for HP. As the PC business generates majority of its top line, the reduction in business volumes at the segment is concerning. The company is also witnessing a secular decline in this segment due to the ongoing shift toward tablets and smartphones – a space where it is yet to gain foothold.

Therefore, the company focuses on product innovations to give a boost to its revenues and is cutting jobs as part of a restructuring plan to lower costs. Post the split from its parent company, HP announced its decision to accelerate the restructuring plan by reducing the total workforce by 3,000 positions by the end of fiscal 2016 and streamlining processes.

We believe that the company’s ongoing restructuring initiatives will help to reduce costs while enhancing productivity, thereby boosting profitability.

Currently, HP carries Zacks Rank #3 (Hold). A better-ranked stock in the broader technology sector is Amkor Technology, Inc. (NASDAQ:AMKR) , sporting a Zacks Rank #1 (Strong Buy).