The $52-per-share tender offer will be HP’s first major acquisition since Compaq. It’s also first big piece of M&A under chief executive Mark Hurd, whose stated strategy had been based on organic growth and cost control.

Even under the various growth scenarios, we’re confident we can provide margin expansion, Hurd said. We’re not focused on lots of multibillion dollar deals.

The aim of the deal is to bring together HP’s systems management suite, OpenView, and Mercury’s application management, delivery and governance suite. Mercury calls this category Business Transformation Optimization.

HP intends to slot OpenView into the BTO mix and keep the BTO marketecture, according to HP software chief Tom Hogan.

We think that’s a succinct and powerful way to capture the concept of aligning IT investment to the business, Hogan said. Our aim is to bring these assets together under that umbrella.

Our two portfolios could not be more complementary, Hogan told analysts. It’s unusual to see two companies of this size with so little overlap.

But there is a substantial amount of customer overlap, executives said. Many firms buy OpenView for the systems management and Mercury for the applications management, they said.

The deal, expected to close in the fourth quarter, would bring revenue growth of between 10% and 15%, and 20% operating margins to HP’s software business, the company said. It should dilute non-GAAP earnings by $0.04 in HP’s fiscal 2007, and add $0.02 in 2008.

The 33% premium HP will pay over Mercury’s closing price on Tuesday July 25 raised eyebrows. Mercury shares, traded on the pink sheets since its scandal-tainted Nasdaq delisting, haven’t seen $52 in two years.

During three conference calls with press and financial and industry analysts, HP executives ducked questions about whether the acquisition came after a competitive bidding process that drove up the price.

You can find low premiums for distressed properties, Hurd said. We feel this premium reflects the value of this property.

At the beginning of May the business press in Israel, where Mercury has its roots, reported that the company was conducting a discrete auction that had, at that time, elicited a $3.5bn bid from HP.

SAP, IBM, Oracle, and CA were also rumored to be sniffing around at that time, according to the Israeli report, printed in the Globes Online. Symantec’s name has also come up.

The following month, it was reported that storage vendor EMC Corp was among the bidders. EMC’s interest reportedly had caused HP to up its bid to $4bn. EMC later denied taht it had ever been interested.

Mercury’s sales health may be strong enough, and its product line complementary enough, but it continues to languish under the cloud of financial scandal, and in January suffered the indignity of being kicked off the Nasdaq.

As one of the first companies to uncover improprieties in how its executive stock options grants were dated, Mercury this year was obliged to retroactively reduce its reported net income between 1992 and 2004 by $566m.

Senior executives, including CEO Amnon Landan, CFO Douglas Smith, and general counsel Susan Skae got canned at the end of last year as a result of the scandal, and the Securities and Exchange Commission is investigating possible civil claims.

The delisting came after Mercury missed regulatory filing deadlines, as it struggled to crunch the numbers relating to the options grants. The HP acquisition cannot close, under its terms, until Mercury officially files its 2005 10-K report.

There is a definite legal cloud over Mercury, and HP CFO Bob Wayman acknowledged that there is little HP can do to hide from potential liabilities.

We frankly cannot fully protect against some potential liability, but we’ve done a lot of work evaluating the potential impact of liabilities, he said. We think they’re very manageable, all the analysis we’ve done here has put some level of liabilities into our model.