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Tuesday, July 25, 2006

BAIT SHOP Takeover: H-P Buys Mercury Interactive

Stock Tickers: MERQ, HPQ, IBM, ORCL

A name that has been in takeover and merger & acquisition circles on and off for years is Mercury Interactive (MERQ), an enterprise software company that provides software and services to the business technology optimization (BTO) marketplace.

After the close today Hewlett Packard (HPQ) announced it would acquire the company for $52.00 per share. HPQ said the $4.5 debt and equity deal will take away $0.04 from EPS on a non-GAAP basis for fiscal 2007, but will be accretive to 2008 non-GAAP EPS by $0.02. This tender will begin shortly and should close in the fourth quarter according to the companies. Mercury closed at $39.00 on the day, and the stock was back up around $50 this time last year; Mercury also trades with a 36.6 P/E and H-P trades with a 25 P/E.

This will give the company some resources to encroach IBM's (IBM) turf. The company has said it was willing to acquire service revenues, and that is just what this does. IBM shares are not trading up or down, and this is not imapcting Oracle (ORCL) in after-hours trading either.

Mercury's management is likely thinking this will remove the SEC Wells Notices as well, so don't be surprised if that is brought up by analysts. This $52 buyout price should appease almost shareholders, so any outstanding issues may get swept under the rug. We'll know soon enough.

Jon C. Ogg
July 25, 2006

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