HP Agrees to Acquire Mercury Interactive

Hewlett-Packard Co. is paying $4.5 billion to buy Mercury Interactive Corp., a maker of business management software that has been entangled in a stock options scandal for the last nine months.

The Palo Alto-based computer and printer maker said Tuesday that it was offering $52 a share in cash for Mountain View, Calif.-based Mercury. That represents a 33% premium above Mercury’s closing price of $39.

The deal, expected to close late this year, represents HP’s biggest acquisition since the Silicon Valley icon paid $19 billion for Compaq Computer Corp. in 2002.

That takeover incensed an heir of a Hewlett-Packard co-founder, who led an unsuccessful shareholder rebellion, and later contributed to a sales funk that culminated in last year’s ouster of HP’s chief executive, Carly Fiorina.

Now, Fiorina’s replacement, Mark Hurd, is betting Mercury’s product line will justify the hefty price being paid for a company embroiled in legal turmoil.

Partly because of the uncertainty looming over the company, Mercury’s stock price hasn’t traded as high as $52 for more than two years.

Hurd, who has boosted HP’s market value by $24 billion since his arrival 16 months ago, assured analysts he didn’t buy Mercury on a whim.

“We didn’t do this lightly,” he said during a Tuesday conference call with analysts.

He also predicted that Mercury would enable Hewlett-Packard to double its annual software sales to about $2 billion. By buying Mercury, HP would have “one of the most powerful software portfolios in the industry,” Hurd said.

Investors seemed skeptical. HP’s shares gained 26 cents to close at $31.33, then shed $1.23, or 3.9%, in extended trading.

Mercury has been more closely associated with scandal than software in recent months because it was among the first companies to acknowledge that its top executives improperly manipulated the timing of stock option awards to increase their potential windfalls.

In November, Mercury ousted its longtime CEO, Amnon Landon, as well as two other top executives after concluding that they looked back in time for a low point in the company’s stock price so the exercise, or “strike,” price of their options could be set at that ebb -- a practice known as backdating.

Mercury posted sales of $843 million last year.

Hurd believes that Mercury’s products will complement HP’s software, which primarily helps companies ensure that their computers continue to run smoothly.

Although HP has been cutting its costs since Hurd’s arrival, most of Mercury’s 3,000 workers are expected to retain their jobs.

HP is in the process of eliminating 15,300 jobs. The company ended its last fiscal year with 150,000 employees.