HP buys software maker for $4.5 billion

SAN FRANCISCO — Hewlett Packard Co. is biting off its biggest acquisition in four years with a $4.5 billion purchase of Mercury Interactive Corp., a maker of business management software that has been entangled in a stock options scandal.

The deal, announced Tuesday by the Palo Alto, Calif.-based computer and printer maker, isn’t cheap.

The all-cash price works out to $52 per share — a price that Mercury’s long-slumping stock hasn’t topped for more than two years. HP’s offer represents a

33 percent premium above Mercury’s closing price of $39 in the over-the-counter market.

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 company 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 flamboyant chief executive, Carly Fiorina.

Now, Fiorina’s low-key replacement, Mark Hurd, is betting Mercury’s product line will justify the hefty price being paid for a company embroiled in legal turmoil. The expansion marks a shift for Hurd, who has made his mark so far by streamlining HP.

Hurd, who has boosted HP’s market value by $24 billion since his arrival 16 months ago, assured analysts he didn’t buy Mercury Interactive on a whim. “We didn’t do this lightly,” he said during a Tuesday conference call with analysts.

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

Investors seemed skeptical, a frequent response whenever a company is making a large acquisition. HP’s shares gained 26 cents to close at $31.33 on the New York Stock Exchange, then shed $1.23, or 3.9 percent, 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 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.

More than 60 other companies also have disclosed internal or regulatory inquiries into a potential backdating of stock options.