Hewlett-Packard (HPQ): A 38% Premium For Opsware (OPSW), Too Much?

Investing

Published: July 23, 2007 7:03 am

Hewlett-Packard (HPQ) will buy data center automation software company Opsware (OPSW) for $14.25 a share and combine it with its enterprise IT management software unit. According to the larger company: "the acquisition of Opsware is intended to extend HP Software’s capabilities to automate the entire data center."

Opsware closed at $10.28 on the last full day of trading. That number is near its 52-week high.

Opsware Inc.’s net revenue for its first quarter ended April 30, 2007 totaled $28.3 million, up 29% from the same quarter last year and exceeding the company’s previously guided range.

The price is very high. Opsware trades at 10x revenue before the buy-out offer and has a forward P/E of 38.. HP’s trades for 1.3x revenue and has a forward P/E of 15.5.

The big tech company is going to have to squeeze a ton of growth out of Opsware to justify the price.

Douglas A. McIntyre