Synnex Corp. shares soared Wednesday after the company announced plans to buy a unit of IBM for $505 million.
THE SPARK: Synnex said late Tuesday that it has reached a deal to buy IBM's customer care outsourcing business for $505 million. The company will pay about $430 million in cash and $75 million in stock, giving IBM an equity stake in Synnex.
THE BIG PICTURE: Synnex, based in Fremont, Calif., is a high-tech contractor that provides distribution and business process outsourcing to retailers, resellers and equipment manufacturers. IBM, based in Armonk, N.Y., has been focusing on its software business and selling off its other businesses.
The companies said in a statement that they expect the deal to close in the coming months.
THE ANALYSIS: Stifel analyst Matthew Sheerin called the deal "transformative." He said the acquisition will add about $1.2 billion to the company's small but fast-growing global business services unit and add to earnings after the first year.
Sheerin said in a research note that the financial terms seem "almost too sweet" given the attractive returns, but it appears that IBM is more interested in focusing on the software business.
The analyst remained neutral on the stock for now, given where shares are valued compared to its peers, but said he views the deal quite positively.
SHARE ACTION: Synnex shares jumped $10.06, or 21 percent, to $58.02 in early afternoon, earlier hitting $59.11, well above the previous high of $52.53.