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IBM deal will be accretive to margins and EPS, says HCL Tech

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HCL Technologies (HCL) on Friday said it would buy some of the software products of International Business Machines (IBM) for $1.8 billion. To get a sense of the deal rationale and how it would benefit HCL, CNBC-TV18 spoke to C Vijayakumar, CEO & Prateek Aggarwal, CFO of the company.

HCL Technologies (HCL) on Friday said it would buy some of the software products of International Business Machines (IBM) for $1.8 billion.
The software products in scope represent a total addressable market of more than $50 billion, IBM said in a statement. The transaction is expected to close by mid-2019.
CNBC-TV18 caught with the management of HCL, C Vijayakumar, CEO and Prateek Aggarwal, CFO of the company to talk about the deal in detail.
Vijayakumar said the rationale for them to pursue this deal was that they already had an IP partnership with IBM on 5 of these 7 products in the last two years.
“We have been able to bring in product innovation and create the right type of growth. So it gave us a lot of confidence on what we can do with the products,” said Vijayakumar.
Aggarwal confirmed that it would be a pure cash deal and that most of it would be financed through internal accruals.
“This is a pure cash deal. The total number including earn out is USD 1,775 million which we are rounding off to USD 1.8 billion. Roughly about half of it, about 48 percent of it is to be paid at close, which we expect to be by middle of calendar 2019 and most of the balance would be paid after end of one year after close,” said Aggarwal.
Aggarwal said, "All the products have a profitable stream of revenue and business. The deal will be accretive to margins and EPS".
 
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