Read The Fine Text: Who Benefits From The HP, Open Text Merger

Last night, Hewlett-Packard HPQ announced it would be buying Autonomy for $42.11 per share in cash, a 64% premium to yesterday's close. In a market rife with volatility and uncertainty, Leo Apotheker is spending a huge amount of money, and paying a huge premium to transition HP. This is definitely a positive sign for the markets in general, as M&A means companies are willing to spend their cash. HP is getting hit today, not only because of the merger, but because of the incredibly weak earnings and guidance it put forth last night, but that is neither here nor there. The question is who benefits from the merger? Software companies are going to benefit, as there starts to become a little bit of an M&A premium built into some software companies. One name that comes to mind is Open Text OTEX. Open Text, as per Yahoo Finance, develops, markets, sells, licenses, and supports enterprise content management (ECM) solutions. Yesterday, when we saw the broader markets drop more than 3%, shares of Open Text rose in sympathy with the Autonomy buyout bid. This morning RBC Capital had a note discussing the potential acquisition of Open Text and who the Canadian-based bank thought would make a good suitor. It mentioned the usual tech titans, such as SAP SAP, Microsoft MSFT, Oracle ORCL, Xerox XRX, Toshiba, Hitachi (HIT), or Fujitsu. The merger with Palm was obviously a disaster and a waste of $1.2 billion in shareholder money, as they scrapped the deal almost one year to the day. HP is trying to turn itself into IBM IBM, and the Autonomy deal goes a long way from transitioning HP from a hardware company into a software and services company. Last year's acquisition of 3PAR was a start, and the Autonomy deal is another step in the right direction. Spinning off the personal computer business is a huge step in the right direction towards becoming a "mini-IBM." IBM sold its personal computer business to Lenovo back in 2004, and has not looked back since. At a $3 billion market cap, Open Text is a paltry sum for any of the names RBC Capital mentioned. Microsoft probably has $5 billion stuck between the mattress cushions in Redmond (assuming a similar 60% premium). Open Text might be one book worth book worth reading, especially at these levels. ACTION ITEMS:

Bullish:
Traders who believe that Open Text is likely to get bought might want to consider the following trades:

• At a 10 P/E, shares of Open Text are cheap even without a merger getting done. Traders may want to consider long dated options, or perhaps buying the outright common if they think a deal is more than likely to get done.

Bearish:
It's bearish for employment. Almost every merger has some sort of attrition, and the working man feels the man more than the corner office. It's a necessary evil of market stability, but it still does not make giving someone the pink slip any easier.

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