HP ISO division may merge with Digital GlobalSoft

BANGALORE: The fate of publicly listed Digital Globalsoft, 50 per cent owned by HP, in the world’s second largest IT empire is slowly unraveling. Unconfirmed sources have said that part of HP’s India Software Operations would be merged with Digital GlobalSoft. This is subject to Digital’s shareholders’ approval.

According to sources, both HP ISO and Digital GlobalSoft would retain their respective entities post-merger. This way, HP would be able to concentrate on research and product development through its India software Operations (HP ISO.) While HP ISO’s e-business services unit would merge with Digital GlobalSoft. HP and Digital officials declined to comment.

In any case, since Digital GlobalSoft is a publicly listed company, any merger or acquisition of a HP unit by Digital would require shareholder approval. For the moment, it is learnt, a share buyback offer by HP to gain a controlling stake in the company has been ruled out. HP (through its subsidiary Compaq Computer Holdings Ltd.) holds 50.78 percent stake in the company, while foreign institutional investors, mutual funds and public hold 15.53 percent, 11.96 percent and 14.48 percent, respectively.

That all the pieces of the puzzle have yet to fall into place is clear, with the postponement of a possible announcement of this merger by HP Services Executive Vice President Ann Livermore. However, HP sources said the announcement has been shifted further into February. Meanwhile, Digital GlobalSoft had appointed a committee to submit recommendations on the merger, the fate of which company officials refuse to divulge.

Broadly, HP ISO will take up the image of development-oriented arm and Digital will strengthen itself up as an IT services company. The E-Solutions Center (ESC) of HP ISO, headed by Padma Ravichander, is expected to merge with Digital. And, on the other hand, Digital’s software development projects would be merged with Enterprise Systems and Solutions Center (ESSC) of HP ISO headed by Subrahmanyam Vempati.

ESC has strengths in HP’s Internet products and technologies and finance, retails and telecom verticals. ESSC engages in product and technology development in systems R&D, IT application services, mission-critical application services and embedded systems. However, in this model, the fate of HP Labs, which was started in 2001 with the objective of developing concepts and products targeted at emerging markets, is not known.

The delay in the decision has created apprehensions among the HP ISO employees, who are not sure about their status. The merger announcement is also expected to throw light on the status of these employees vis-à-vis the more than 20000 layoffs that has been planned following the HP-Compaq merger.

According to Digital GlobalSoft, it has already started getting projects from HP. On its site, it mentions that "currently, several new business engagements ranging from 10 to 100 plus people are in the pipeline many of which are annuity-based and will transition to offshore. Projects span multiple divisions and will be executed across geographies, each with its individual time line for ramp up and delivery. These engagements have improved Digital's growth prospects in line with the management's stated expectations."

There are several cultural issues perceived in the merger of the two entities. There are concerns among HP employees with regard to the implications of the merger on their compensations. In the job market, HP is considered as a ‘pay master’, while Digital employees’ compensation match that of any other software services company in India. Consequently, there is a disparity between the two HP subsidiaries. Interestingly, last month, HP declared a 10 percent hike in salary, which would be enjoyed by the employees of pre-merger HP. On the other hand, Digital employees expect their compensation to improve if and when rationalization takes place across the board.