HP to Buy EDS for $13.9B
The play for the tech services company would mark Hewlett Packard’s largest buy since the 2001 Compaq deal
May 13, 2008
Hewlett-Packard and Electronic Data Systems agreed to a merger valued at about $13.9 billion, the companies stated early Tuesday, though the announcement was greeted with mixed reviews.
HP will pay $25 per share for EDS, a premium of about 32% over Friday's closing price. A R.W. Baird analyst maintained HP’s outperform stock rating, but added the EDS deal is “perhaps not the best strategic” move. However, a Merrill Lynch report said HP’s buy of EDS represents “a strategic fit for HP as a U.S.-based IT outsourcing company with a healthy offshore presence and a large percentage of commercial business.”
The deal is expected to give HP a boost in competing with IBM; a source familiar with both companies said that even if IBM wanted to submit a counter-bid, it would be tough to get a tuck-in of EDS completed because of anti-trust issues. That source declined to fully rule out the possibility of a counter-bid from another company, however.
The Merrill report warned that HP would have to take steps to boost revenue growth at EDS, which is seeing estimates of about 3.4% annual growth over the next few years. The source familiar with the deal noted that thanks to cross-synergies between the two companies, there can be "a ton of elimination" after the deal is completed, meaning that the full value of EDS' acquisition by HP is not easily estimated.
The HP-EDS deal makes Hewlett Packard the second largest computer firm behind IBM.
The deal is the largest for HP since its 2001 $20 billion buy of PC and laptop maker Compaq.
“The combination of HP and EDS will create a leading force in global IT services,” said HP chairman and chief executive Mark Hurd. “Together, we will be a stronger business partner, delivering customers the broadest, most competitive portfolio of products and services in the industry.”
EDSchairman and chief executive Ronald Rittenmeyer will still serve as the soon-to-be HP division’s head and will also join HP’s executive council.
“It's also beneficial to our customers, as the combination of our two global companies and the collective skills of our employees will drive innovation and enhance value for them in a wide range of industries,” said Rittenmeyer. “In addition, our Agility Alliance will be significantly strengthened.”
For more information on related topics, visit the following:
