Updated from 2:43 p.m. EDTGravely wounded by the options-backdating scandal, Mercury Interactive ( MERQ) needed a buyer. And Hewlett-Packard ( HPQ) needed an enterprise software company to help it compete against IBM ( IBM). For once, a major software acquisition is relatively straight-forward and is getting a mildly positive, if not overwhelming, reception on Wall Street. The only quibble, and it's a fairly serious one, is the price. At $52 a share, or about $4.5 billion, H-P will be paying a premium of 33% over Tuesday's close and approximately 4.5 times to six times sales. The multiple is unclear because Mercury, which was delisted by the Nasdaq last year, has yet to file updated financial information with the Securities and Exchange Commission. "Did he
And because there's little or no overlap product overlap between the two companies, there should be significant cross-selling opportunities. Moreover, Mercury's software, which is used to test and optimize applications and to manage IT spending programs, lends itself to consulting opportunities, another area in which H-P competes with IBM and its partners. The timing of the deal, said Goldman Sachs analyst Laura Conigliaro in a Wednesday note, suggests that "H-P's typically conservative management must at least be reasonably confident about the direction for the July quarter." Goldman Sachs has investment banking business with H-P and Mercury. If Mercury had remained a stand-alone company, the overhang from the options-related scandal would have been very serious. But Wall Street has accepted Hurd's assertion that his company's due diligence did not uncover new or unreported problems with Mercury's accounting. Hurd also said there were other suitors, which explains the relatively high price commanded by a damaged company. Although he would not name the other bidders, it's possible that CA ( CA) or perhaps BMC ( BMC) were bidders. And that raises the prospect of yet another deal. Credit Suisse analyst Jason Maynard noted that Quest Software ( QSFT) is the only stand-alone applications and systems management vendor focused exclusively on the non-mainframe market, although the company has its own backdating issues to resolve. His company does not have an investment banking relationship with the companies mentioned in this story. H-P's purchase of Mercury is expected to close in the last quarter of the year, pending regulatory approval, which seems very likely.