HP To Buy Mercury Interactive For $4.5 Billion

Mercury will become part of HP Software, pushing that group's revenue past $2 billion annually, according to HP.

"[This deal] enables us to be an end-to-end leader in enterprise IT management," HP CEO Mark Hurd said in a conference call with reporters. "This portfolio of capabilities will allow CIOs and customers to reduce IT costs and make better IT decisions."

The acquisition is HP's first multibillion-dollar purchase since its Compaq takeover, a deal that turned into an epic struggle and eventually led to Carly Fiorina's ouster as HP's CEO. Hurd brusquely dispatched questions about Compaq's shadows by noting that the deal didn't happen on his watch.

"I wasn't here during the Compaq acquisition so I can't tell you of personal lessons I've learned, but I think the organization has done lots of learning," Hurd said. "We've built what we think is a pretty deeply detailed plan on the opportunity to run this business."

Asked about the fate of Mercury's channel program and whether it will be subsumed into HP's, executives from the two companies ignored the question. The rushed press call ended before the executives had addressed all of the queued-up queries.

Mercury has been operating under the cloud of an accounting debacle. One of the companies hit hardest by the wave of stock-options reporting problems plaguing the industry, Mercury lost its Nasdaq listing in January for failing to file its financial reports on time. The company fell behind on its reporting as its board investigated the scope of the problem and prepared to restate years' of financial reports. The scandal forced out Mercury's CEO, CFO and general counsel, all of whom knew of the company's inaccurate stock-option reporting and personally profited from it, according to the company's board.

Bigger than a boutique firm but smaller than the giants like IBM and CA that it competed against, Mercury was long viewed by industry analysts as prime acquisition bait. It recorded revenue of $843 million in its 2005 fiscal year.

HP's software head, Thomas Hogan, described Mercury as an ideal fit with HP's OpenView line of systems and network management software.

"It almost felt like two companies sat down five years ago and said, 'We'll go build all this ... you go do that, and we'll come together in five years as a perfect match,'" Hogan said. "We complement each other perfectly with almost no product overlap."

HP will pay $52 cash per share for Mercury, which ended trading Monday on the Pink Sheets at $38.67. Pending regulatory and other approvals, HP expects the acquisition to close in the fourth quarter of this year.

HP's has a spotty record with software acquisitions. It spent $470 million in 2001 buying middleware maker Bluestone Software, then killed the products less than two years later.

More recently, HP paid $425 million for IT asset and service management software maker Peregrine Systems. Like Mercury, Peregrine was weakened by an accounting scandal that softened it for a takeover.