HP to Acquire Mercury Interactive Corp.; Acquisition Positions Company as a Market Leader in IT Management Software

Business Wire, July 25, 2006

PALO ALTO, Calif. -- HP (NYSE:HPQ) (Nasdaq:HPQ) today announced that it has signed a definitive agreement to purchase Mercury Interactive Corp., a leading IT management software and services company, through a cash tender offer for $52.00 per share, or an enterprise value of approximately $4.5 billion, which is net of existing cash and debt.

Upon closing, the acquisition will establish HP's portfolio of IT management software and services as the clear choice for companies seeking to optimize the value that IT brings to business.

"Today, we are combining two market-leading businesses to create the most powerful management software portfolio in the industry," said Mark Hurd, HP chief executive officer and president. "Together, they will help customers cut their IT costs, speed the delivery of new services and drive profitable growth at HP. We expect this important acquisition to deliver significant value for our shareholders."

Mercury Chief Executive Officer and President Tony Zingale said, "Together, HP and Mercury instantly become the industry's premier provider of business technology optimization (BTO) software. A deal of this magnitude creates significant opportunities for our customers, our shareholders, our people and our partners."

The transaction brings together the strength of HP OpenView systems, network and IT service management software with Mercury's strength in application management, application delivery, IT governance and service-oriented architecture governance. This combination provides customers with the industry's most robust suite for optimizing, automating and aligning IT services with business needs.

"HP's software strategy is to be the clear leader in end-to-end enterprise IT management and help our customers tightly align IT priorities with changing business requirements," said Thomas E. Hogan, senior vice president, Software, HP. "Combining our HP OpenView offerings with Mercury's BTO Enterprise offerings will integrate the many building blocks of enterprise IT management into one complete solution for the entire IT lifecycle, from planning through to deployment and operations. Mercury is a results-driven, high-performing company with outstanding people that will be a strong addition to HP."

The Mercury acquisition is expected to increase the size of the HP Software business to more than $2 billion in annual revenue. Immediately following the close of the transaction, Mercury will become part of the HP Software business and both companies' sales forces will begin reference-selling each others' products.

HP forecasts that on a non-GAAP basis, the combined HP Software business will deliver revenue growth of approximately 10 percent to 15 percent and operating margin of approximately 20 percent in fiscal year 2008. On a pro forma basis, the transaction is expected to be approximately $0.04 dilutive to non-GAAP per share earnings in fiscal year 2007 and approximately $0.02 accretive to non-GAAP per share earnings in fiscal 2008. This includes purchase accounting adjustments related to deferred revenue write downs and deferred compensation expense of approximately $141 million, or $0.05 per share, in fiscal 2007 and approximately $43 million, or $0.01 per share, in fiscal 2008, as well as expected synergies.

The acquisition will be conducted by means of a tender offer for all of the outstanding shares of Mercury, followed by merger of Mercury with an HP subsidiary. The tender offer is subject to a number of conditions, including that Mercury has filed its Annual Report on Form 10-K for its fiscal year ended Dec. 31, 2005. HP expects to commence the tender offer promptly and the merger is expected to close in the fourth quarter of calendar year 2006.

Webcasts and conference calls

This afternoon, HP will conduct one webcast and two live audio calls to discuss its intent to acquire Mercury. Mercury will conduct a separate webcast for financial analysts.

HP media call: 4:30 p.m. ET / 1:30 p.m. PT, hosted by Mark Hurd. U.S. dial-in: 1 866 356 3377; International dial-in: 1 617 597 5392, passcode: 36175291. Replay information, available until Aug. 1, 2006: U.S. dial-in: 1 888 286 8010, International dial-in: 1 617 801 6888, passcode: 16464601.

HP conference call and webcast for financial analysts and shareholders: 5 p.m. ET / 2 p.m. PT, hosted by Mark Hurd. Listen only dial-in: U.S. 1 800 299 0148, International dial-in: 1 617 801 9711, passcode: 82591745. Live audio webcast: www.hp.com/hpinfo/investor. Replay information, available until Aug. 1, 2006: U.S.: 1 888 286 8010, International dial-in: 1 617 801 6888, passcode: 55367340.

HP industry analyst call: 6 p.m. ET / 3 p.m. PT, hosted by Thomas Hogan. U.S. dial-in: 1 800 299 8538; International dial-in: 1 617 786 2902, passcode: 83000965. Replay information, available until July 25, 2007: U.S. dial-in: 1 888 286 8010; International dial-in: 1 617 801 6888, passcode: 57320057.

Mercury financial analyst webcast for analysts and shareholders: 8:30 p.m. ET / 5:30 p.m. PT, hosted by Tony Zingale; David Murphy, chief financial officer; and, Shelly Schaffer, vice president, Corporate Finance.